WB: Global Economic Prospects to Improve in 2015

Regional Highlights:

The East Asia and Pacific region continued its gradual adjustment to slower but more balanced growth. Regional growth slipped to 6.9 percent in 2014 as a result of policy tightening and political tensions that offset a rise in exports in line with the ongoing recovery in some high-income economies. The medium-term outlook is for a further easing of growth to 6.7 percent in 2015 and a stable outlook thereafter, reflecting a gradual slowdown in China, which will be offset by a pick-up in the rest of the region in 2016-17. In China, structural reforms, a gradual withdrawal of fiscal stimulus, and continued prudential measures to slow non-bank credit expansion will result in slowing growth to 6.9 percent by 2017 (from 7.4 percent in 2014). In the rest of the region, excluding China, growth will strengthen to 5.5 percent by 2017 (from 4.6 percent in 2014) supported by firming exports, improved political stability, and strengthening investment.

Growth in developing Europe and Central Asia is estimated to have slowed to a lower-than-expected 2.4 percent in 2014 as a sputtering recovery in the Euro Area and stagnation in Russia posed headwinds. In contrast, growth in Turkey exceeded expectations despite slowing to 3.1 percent. Regional growth is expected to rebound to 3 percent in 2015, 3.6 percent in 2016 and 4 percent in 2017 but with considerable divergence. Recession in Russia holds back growth in Commonwealth of Independent States whereas a gradual recovery in the Euro Area should lift growth in Central and Eastern Europe and Turkey. The tensions between Russia and Ukraine and the associated economic sanctions, the possibility of prolonged stagnation in the Euro Area, and sustained commodity price declines remain key downside risks for the region.

Growth in Latin America and the Caribbean slowed markedly to 0.8 percent in 2014, but with diverging developments across the region. South America slowed sharply as domestic factors, exacerbated by economic slowdown in major trading partners and declining global commodity prices, took their toll on some of the largest economies in the region. In contrast, growth in North and Central America was robust, lifted by strengthening activity in the United States. Strengthening exports on the back of the continued recovery among high-income countries and robust capital flows should lift regional GDP growth to an average of around 2.6 percent in 2015-17. A sharper-than-expected slowdown in China and a steeper decline in commodity prices represent major downward risks to the outlook.

Following years of turmoil, some economies in the Middle East and North Africa appear to be stabilizing, although growth remains fragile and uneven. Growth in oil-importing countries was broadly flat in 2014, while activity in oil-exporting countries recovered slightly after contracting in 2013. Fiscal and external imbalances remain significant. Regional growth is expected to pick up gradually to 3.5 percent in 2017 (from 1.2 percent in 2014). Risks from regional turmoil and from the volatile price of oil are considerable; political transitions and security challenges persist. Measures to address long-standing structural challenges have been repeatedly delayed and high unemployment remains a key challenge. Lower oil prices offer an opportunity to remove the region’s heavy energy subsidies in oil-importing countries.

In South Asia, growth rose to an estimated 5.5 percent in 2014 from a 10-year low of 4.9 percent in 2013. The upturn was driven by India, the region’s largest economy, which emerged from two years of modest growth. Regional growth is projected to rise to 6.8 percent by 2017, as reforms ease supply constraints in India, political tensions subside in Pakistan, remittances remain robust in Bangladesh and Nepal, and demand for the region’s exports firms. Past adjustments have reduced vulnerability to financial market volatility. Risks are mainly domestic and of a political nature. Sustaining the pace of reform and maintaining political stability are key to maintaining the recent growth momentum.

In Sub-Saharan Africa, growth picked up only moderately in 2014 to 4.5 percent, reflecting a slowdown in several of the region’s large economies, notably South Africa. Growth is expected to remain flat in 2015 at 4.6 percent (lower than previously expected), largely due to softer commodity prices, and rise gradually to 5.1 percent by 2017, supported by infrastructure investment, increased agriculture production, and buoyant services. The outlook is subject to significant downside risks arising from a renewed spread of the Ebola epidemic, violent insurgencies, lower commodity prices, and volatile global financial conditions. Policy priorities include a need for budget restraint for some countries in the region and a shift of spending to increasingly productive ends, as infrastructure constraints are acute. Project selection and management could be improved with greater transparency and accountability in the use of public resources.