Emerging markets 'face more risks in 2016'

Emerging markets 'face more risks in 2016'

Emerging markets face increasing risks despite a slight pick-up in the global growth forecast this year, said the World Bank.

The bank tips global expansion to come in at 2.9 per cent, slightly ahead of the 2.5 per cent pace in 2015.

But emerging markets will continue to see weak growth, weighed down by reduced Chinese demand and falling commodity prices.

They are expected to expand 4.8 per cent this year, up slightly from the 4.3 per cent posted last year, which was the lowest pace since the financial crisis eight years ago.

The slower growth in turn will pose major challenges for efforts to combat poverty, which is especially rampant in emerging economies, said the World Bank, in its 2016 Global Economic Prospects report.

"Simultaneous weakness in most major emerging markets is a concern for achieving the goals of poverty reduction and shared prosperity because those countries have been powerful contributors to global growth for the past decade," it said.

China is expected to slow further this year, down from the 6.9 per cent growth rate last year, while both Brazil and Russia are likely to remain stuck in recessions brought on by falling commodity prices.

But one bright spark could be in India, which has been enjoying a boost from the low prices of oil, which has traded at about US$45 a barrel on average last year.

The Trans-Pacific Partnership trade pact could also boost developing economies once it has been endorsed by the respective members of the economic group.

"Spillovers from major emerging markets will constrain growth in developing countries and pose a threat to hard-won gains in raising people out of poverty," noted the bank report.

World Bank group chief economist Kaushik Basu said emerging markets have been facing greater challenges in recent months. "Compared to six months ago, risks have increased, particularly those associated with the possibility of a disorderly slowdown in a major emerging economy," said Mr Basu.

Other risks to the outlook include financial stress around rising interest rates in the United States and heightened geopolitical tensions.

Analysts at Principal Global Investors also flagged emerging market woes as one to watch this year.

"Growth in emerging markets has slowed markedly as they deal with the aftermath of the decade-long boom," said analysts in a note.

"The risk is that credit excesses, slower growth, producer price deflation, and a plunge in profits bring a financial crisis to emerging markets that spreads across the world."


This article was first published on January 7, 2016.
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