June 11, 2015 (LBO) – The World Bank says, that developing countries would face a series of tough challenges in 2015, including the looming prospect of higher borrowing costs as they adapt to a new era of low prices for oil and other key commodities, resulting in a fourth consecutive year of disappointing economic growth this year.
“Developing countries were an engine of global growth following the financial crisis, but now they face a more difficult economic environment,” Jim Yong Kim, President of World Bank Group said.
“We’ll do all we can to help low- and middle-income countries become more resilient so that they can manage this transition as securely as possible,”
“We believe that countries that invest in people’s education and health, improve the business environment, and create jobs through upgrades in infrastructure will emerge much stronger in the years ahead,”
“These kinds of investments will help hundreds of millions of people lift themselves out of poverty.”
Releasing a report “Global Economic Prospects (GEP)”, the banks says developing countries are now projected to grow by 4.4 percent this year, with a likely rise to 5.2 percent in 2016, and 5.4 percent in 2017.
The report says borrowing will become more expensive for emerging and developing economies over the coming months, with expected U. S interest rate liftoff.
“This process is expected to unfold relatively smoothly since the U.S. economic recovery is continuing and interest rates remain low in other major global economies.” the bank says.
However, the report argues that there are considerable risks around this expectation.
“Just as the initial announcement of U.S. policy normalization caused turmoil in financial markets in 2013 – now referred to as the “taper tantrum” – the U.S. Federal Reserve’s first interest rate increase, or liftoff, since the global financial crisis could ignite market volatility and reduce capital flows to emerging markets by up to 1.8 percentage points of GDP.”
An economist of the World Bank says the ground beneath the global economy is shifting slowly.
“China has avoided the potholes skillfully for now and is easing to a growth rate of 7.1 percent; Brazil, with its corruption scandal making news, has been less lucky, dipping into negative growth. With an expected growth of 7.5 percent 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.
“The main shadow over this moving landscape is of the eventual U.
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“This could dampen capital flows and raise borrowing costs. This GEP provides a comprehensive analysis of what the liftoff may mean for the developing world.”
The report says that this action would especially hurt emerging markets with greater vulnerabilities and weakening growth prospects.
Long term bond prices that reflect the real interest rate direction has dropped by 12% since end January inspite of the fed’s induced near zero rate.(This reflects rising expectations for interest rates to move up & fed too may raise base rates moment they feel comfortable as indicated).,This may also change the direction of global flow of funds. Preperations seems to be essential.