The World Bank has downgraded its 2016 global growth forecast to 2.4% from the 2.9% pace projected in January. This comes as South Africa narrowly avoided a downgrade to ‘junk’ status last week.

The global downgrade is due to sluggish growth in advanced economies, stubbornly low commodity prices, weak global trade, and diminishing capital flows.

According to bank’s latest Global Economic Prospects report, commodity-exporting emerging market and developing economies have struggled to adapt to lower prices for oil and other key commodities, and this accounts for half of the downward revision.

Growth in these economies is projected to advance at a meagre 0.4%.

“This sluggish growth underscores why it’s critically important for countries to pursue policies that will boost economic growth and improve the lives of those living in extreme poverty,” said World Bank Group President Jim Yong Kim.

“Economic growth remains the most important driver of poverty reduction, and that’s why we’re very concerned that growth is slowing sharply in commodity-exporting developing countries due to depressed commodity prices.”

Commodity-importing emerging markets and developing economies have been more resilient than exporters, although the benefits of lower prices for energy and other commodities have been slow to materialise.

These economies are forecast to expand at a 5.8% rate in 2016, down modestly from the 5.9% pace estimated for 2015, as low energy prices and the modest recovery in advanced economies support economic activity.

A significant increase in private sector credit – fuelled by an era of low interest rates and, more recently, rising financing needs – raise potential risks for several emerging market and developing economies, the report finds.

 

SA growth rate has slight decline

South Africa is forecast to grow at a 0.6% rate in 2016, 0.8 of a percentage point more slowly than the January forecast.

Growth in Sub-Saharan Africa is forecast to slow again in 2016, to 2.5%, down from an estimated 3% in 2015, as commodity prices are expected to remain low, global activity is anticipated to be weak, and financial conditions are tightening.

Investment growth is expected to slow in many countries as governments and investors cut or delay capital expenditures in a context of fiscal consolidation.

 

SA avoids ‘junk’ status

South Africa last week narrowly avoided a downgrade to junk status.

Both Fitch Ratings and Standard & Poor reaffirmed South Africa’s outlook as stable, one notch above junk status. Many economists however believe that South Africa will be downgraded later this year.