World Bank’s Outlook

Here’s some summary of World Bank Global Economic Prospect Jan 2016:

  • Global growth are running below long-run average both Emerging Market (EM) and Advanced Economies (AE).
  • EM accounted for 46% of global growth in 2000–08, and 60% during 2010–14. By 2014, EM constituted 34% of global GDP. Increasing EM contribution to global growth is driven by economy integration into international trade. EM have become major export destinations for the rest of the world and important of remittances, commodity supply and demand, FDI, and official development assistance.
  • BRICS are the largest EM: in 2010–14 contributed 40% to global growth (up from 10% during 1990’s). Now BRICS = 2/3 of EM market activity and more than 1/5 of global activity.
  • Among BRICS itself the slowdown coming from easing growth in China, persistent weakness in South Africa, and steep recession in Russia & Brazil. Meanwhile India is an exception.
  • A synchronous slowdown in BRICS (except India) have significant spillovers to the rest of the world through trade and finance. Specifically, a 1ppt decline in BRICS growth is associated with lower growth in other EM by 0.8ppt, and in the global economy by 0.4ppt.
  • Key channels of spillovers:

a. Reduced import demand from BRICS > weaken trading partner exports.

b. Reduced commodity demand > reduced growth in commodity exporters.

c. Lower remittances from Russia > reduce houshold incomes and consumption in neighboring countries.

  • EM slowdown is attributed to both external and domestic factors as well as cyclical and structural factors:

a. External factor: weak global trade, falling commodity price, and financial market turbulence.

b. Domestic or country specific factor: slowdown in productivity growth, policy uncertainty, and shrinking fiscal and monetary policy buffer.

  • How weak global trade affect negatively to EM?

a. Advanced market constitute 60% of world import demand (currently they grow at a rate of less than 2%)

b. Investment demand in advanced market has been weak.

c. Maturation of global value chain (the law of diminishing return).

d. Higher capital requirement + tightened financial regulation = reduced trade finance from banks.

e. The pace of trade liberalization has slowed since 2008 crisis.

  • However, the spillover due to G7 countries slowdown has bigger effect than spillover from BRICS slowdown. Specifically, a 1ppt decline in G7 growth is associated with lower growth in other EM by 1.2ppt, and in the global economy by 0.6ppt.
Summary Chart

— -end of post #26