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Growth Forecast Bleak For Developing Nations

developing nations
The World Bank has predicted disappointing growth ahead for developing nations, lowering its growth rate forecast to 4.8 percent – a drop from the initial January estimate of 5.3 percent. The recently published Global Economic Prospects report has revealed a weak first quarter for economic activity in 2014. Inclement weather in the United States, rebalancing efforts in China, political strife in various middle-income economies, slow progress on structural reform and capacity constraints have contributed to the third consecutive year of sub-5 percent growth for developing nations.

Nevertheless, this figure is expected to increase in 2015 and 2016 to 5.4 percent and 5.5 percent, respectively. The global economy is expected to “pick up speed” over the course of this year and expand by 2.8 percent. By 2016, the global growth rate will reach 3.5 percent. High-income economies will contribute to approximately half of global growth in 2015 and 2016 – compared to the sub-40 percent figure recorded in 2013.

Their addition of $6.3 trillion to global demand over the next three years is significantly more than not only their $3.9 trillion contribution during the last three years, but also the expected upcoming contribution from the developing world. The impending acceleration that high-income economies will experience has been cited as “an important impetus for developing countries.”

The national budgets of developing nations have weakened. Since 2007, debt-to-GDP ratios have increased by more than 10 percentage points. In nearly half of the developing world, government deficits exceed 3 percent of GDP. Countries with large deficits – such as Ghana, India, Kenya, Malaysia and South Africa – would benefit from tightening their fiscal policy. To maintain rapid income growth, many developing countries also need to revive and strengthen their structural reform agenda.

Despite the situation in Ukraine and “headwinds from global financial turbulence,” the growth rate of developing countries in Europe and Central Asia remained on track in the first quarter of 2014. The Ukraine situation has contributed to an estimated 1 percentage point off growth among low and middle-income nations in the region.

Currently, growth in the developing countries of the Middle East and North Africa region remain weak at 1.9 percent. Due to stronger oil-importing economies and rebound in oil production among oil exporters, however, this growth rate is expected to rise to 3.6 percent and 3.5 percent in 2015 and 2016, respectively.

Both oil-importing and developing oil-exporting nations are experiencing more stable economic activity following earlier disruptions, but aggregate production is still below the 2013 average. The World Bank states that the outlook for the Middle East and North Africa region is “shrouded in uncertainty and subject to a variety of domestic risks linked to political instability and policy uncertainty.”

Growth rates in the developing world remain too low to spur significant economic development and create the strong job market necessary to improve the lives of the bottom 40 percent. World Bank Group President, Jim Yong Kim, has urged for action, saying that countries “need to move faster and invest more in domestic structural reforms to get broad-based economic growth to levels needed to end extreme poverty in our generation.”

— Kristy Liao

Sources: ABC, Bloomberg, The Economic Times, World Bank
Photo: Lead Investing News