The World Bank sees the India-led South Asia region as a bright spot at a time of what appears to be weak growth among major emerging economies, pointing to a rather anaemic economic recovery this year.
In its just-released January 2016 Global Economic Prospects report, the Bank has projected a robust 7.8 per cent growth for India in 2016-17, while China, still grappling with an acute slowdown, is expected to grow at 6.7 per cent.
“Weak growth among major emerging markets will weigh on global growth in 2016, but economic activity should still pick up modestly to a 2.9 per cent pace, from 2.4 per cent growth in 2015, as advanced economies gain speed,” the report said.
Although effecting a marginal 0.1 per cent cut of India’s growth projection as well, the Bank noted that in contrast to other emerging economies, India remains robust, buoyed by strong investor sentiment and the positive effect on real incomes of the fall in oil prices.
With India as the dominant economy of South Asia, it said: “The region is projected to be a bright spot in the outlook for emerging and developing economies, with growth speeding up to 7.3 per cent in 2016 from 7 per cent in the year just ended.”
As a net importer of oil, the Bank expects the region to benefit from lower global energy prices, adding that because of its relatively low global integration, the region also remains shielded from growth fluctuations in other economies.
For FY 2016-17, India, the dominant economy in the region, is projected to grow at a faster 7.8 percent and growth in Pakistan (on a factor cost basis) is expected to accelerate to 4.5 percent.
Overall, noting the simultaneous weakness in most major emerging markets, the report has warned of spillovers that will constrain growth in developing countries as a whole, posing a threat to hard-won gains in bringing people out of poverty.
“More than 40 per cent of the world’s poor live in the developing countries where growth slowed in 2015,” said World Bank President Jim Yong Kim, calling upon the developing countries to focus on building resilience and shielding the most vulnerable.
“The benefits from reforms to governance and business conditions are potentially large and could help offset the effects of slow growth in larger economies,” he said.
While global growth in 2015 was less than expected, with activity sapped by falling commodity prices, flagging trade and capital flows and episodes of financial volatility, the report notes that firmer growth ahead will depend on continued momentum in high income countries, stabilization of commodity prices and China’s gradual transition towards a more consumption and services-based growth model.
Developing economies are forecast to expand by 4.8 per cent in 2016, less than expected earlier but up from a post-crisis low of 4.3 per cent in the year just ended. While growth could slow further in China, the Bank expects Russia and Brazil to continue in recession in 2016.
“There is greater divergence in performance among emerging economies. Compared to six months ago, risks have increased, particularly those associated with the possibility of a disorderly slowdown in a major emerging economy,” said Bank Vice President and Chief Economist Kaushik Basu, noting that a combination of fiscal and central bank policies can help mitigate these risks and support growth.