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World Bank: Expected 2016 U.S. Economic Growth Won’t Save Developing Nations

The World Bank cut its global growth forecast amid concerns about slow growth in China and emerging markets.

GettyImages-469934198
GettyImages-469934198

There have long been concerns that China’s economic slowdown would stymie emerging markets like Brazil and Russia, where financial stability largely depends on the Asian power to buy commodities like sugar and steel. On Wednesday, the World Bank confirmed those fears.

The bank predicted that the U.S. economy will continue to grow this year, increasing by 2.7 percent in 2016. Advanced economies like the United States generally drive global growth, according to Ayhan Kose, director of the bank's development prospects group.

But worldwide, the outlook isn’t as rosy: Global growth is expected to drop to 2.9 percent, a much milder expansion than the 3.3 percent estimated in June. And predicted growth in China -- the world’s second-largest economy -- will fall particularly short. World Bank estimates forecast 6.3 percent growth in China in 2016, down from a previous prediction of 6.7 percent. Throughout 2015 and into 2016, China has dealt with an economic slowdown due to decreases in exports, as well as turbulence on the stock market that has erased hundreds of billions of dollars in wealth.

There have long been concerns that China’s economic slowdown would stymie emerging markets like Brazil and Russia, where financial stability largely depends on the Asian power to buy commodities like sugar and steel. On Wednesday, the World Bank confirmed those fears.

The bank predicted that the U.S. economy will continue to grow this year, increasing by 2.7 percent in 2016. Advanced economies like the United States generally drive global growth, according to Ayhan Kose, director of the bank’s development prospects group.

But worldwide, the outlook isn’t as rosy: Global growth is expected to drop to 2.9 percent, a much milder expansion than the 3.3 percent estimated in June. And predicted growth in China — the world’s second-largest economy — will fall particularly short. World Bank estimates forecast 6.3 percent growth in China in 2016, down from a previous prediction of 6.7 percent. Throughout 2015 and into 2016, China has dealt with an economic slowdown due to decreases in exports, as well as turbulence on the stock market that has erased hundreds of billions of dollars in wealth.

All of that means that the economic growth predicted for China and even the United States won’t be enough to bail out developing nations.

“Stronger growth in advanced markets will only partially offset the risks of continued weakness in major emerging markets,” Kose cautioned.

The bank also lowered economic growth estimates, in part, to factor in the U.S. Federal Reserve’s December decision to lift the cost of borrowing from near zero for the first time since 2008. Fed chief Janet Yellen has said that additional interest rate increases could come in 2016; minutes from the Fed’s December 2015 meeting released Wednesday hinted at the same.

Any increase to the cost of borrowing is a blow to emerging markets, which often rely on loans to grow. The bank lowered its growth forecast for these economies to 4.8 percent, down from its June forecast of 5.4 percent. Russia and Brazil are expected to stay in recession in 2016.

“More than 40 percent of the world’s poor live in the developing countries where growth slowed in 2015,” World Bank Group President Jim Yong Kim said in a statement Wednesday. “Developing countries should focus on building resilience to a weaker economic environment and shielding the most vulnerable.”

Photo credit: Alex Wong/Getty Images

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