For the first time, India is leading the growth chart of major economies, even ahead of China, according to the World Bank Group’s latest Global Economic Prospects (GEP) report.
In India, new reforms are improving business and investor confidence and attracting new capital inflows. Further, the falling oil prices have reduced vulnerabilities. These and other factors should help the Indian economy to achieve 7.5 per cent growth this year, says the GEP report.
“Slowly but surely the ground beneath the global economy is shifting. China has avoided the potholes skillfully for now and is easing to a growth rate of 7.1 per cent; Brazil, with its corruption scandal making news, has been less lucky, dipping into negative growth. With an expected growth of 7.5 per cent this year, India is, for the first time, leading the World Bank’s growth chart of major economies...,” said Kaushik Basu, World Bank chief economist and senior vice president.
Led by a recovery in India and supported by a gradual strengthening of demand in high-income countries, growth in South Asia is expected to continue firming to 7.1 per cent this year. The decline in global oil prices has been a major benefit for the region, driving improvements in fiscal and current accounts, enabling subsidy reforms in some countries, and the easing of monetary policy.
On Pakistan, the report expects continued recovery of manufacturing and services sectors; however, growth is expected to remain moderate, reflecting ongoing energy constraints.
For developing countries, 2015 may mark the fourth consecutive year of disappointing economic growth, as they face a series of tough challenges, including the looming prospect of higher borrowing costs as they adapt to a new era of low prices for oil and other key commodities. As a result, developing countries are now projected to grow by 4.4 per cent this year, with a likely rise to 5.2 per cent in 2016, and 5.4 per cent in 2017, says the report.
“Developing countries were an engine of global growth following the financial crisis, but now they face a more difficult economic environment,” said World Bank Group President Jim Yong Kim.
With an expected liftoff in the US interest rates, borrowing will become more expensive for emerging and developing economies over the coming months. This would especially hurt emerging markets with greater vulnerabilities and weakening growth prospects. For commodity-exporting emerging markets that are already struggling to adjust to persistently low commodity prices, or for countries experiencing policy uncertainty, a slowdown in capital flows would add to their policy challenges.
“Unless emerging markets have taken the prudent policy steps to be fiscally and externally resilient, they may face significant challenges dealing with the turbulence and other fallout that could be associated with a Fed tightening,” said Ayhan Kose, the World Bank’s director of Development Prospects.
A special analysis in the report finds that low-income countries, many of which depend on commodity exports and investment, are vulnerable in the current environment. In high-income countries, in contrast, recovery is gaining momentum, as growth in the Euro Area and Japan picks up and the United States continues to expand, despite a weak start to the year.
High-income countries are on course to grow by 2.0 per cent this year, 2.4 per cent in 2016 and 2.2 per cent in 2017. The global economy is likely to expand by 2.8 per cent this year, 3.3 per cent in 2016 and 3.2 per cent in 2017. Using 2010 purchasing power parity weights, global growth would be 3.4 per cent in 2015, and 4.0 per cent for each of 2016 and 2017.
The report also warns that an excessive appreciation of the US dollar could curtail the recovery in the world’s largest economy, with adverse side-effects for US trading partners around the world.
