Developing countries are headed for a year of disappointing growth, the World Bank’s Global Economic Prospects (GEP) report has revealed.

According to the report, first quarter weakness in 2014 has delayed an expected pick-up in economic activity. The bank has lowered its forecasts for developing countries from its January estimate of 5.3% to a more modest 4.8%. Signs point to strengthening in 2015 and 2016 to 5.4% and 5.5% respectively.

“Growth rates in the developing world remain far too modest to create the kind of jobs we need to improve the lives of the poorest 40%,” said World Bank Group President Jim Yong Kim. “Clearly, countries need to move faster and invest more in domestic structural reforms to get broad-based economic growth to levels needed to end extreme poverty in our generation.”

Markets remain skittish and speculation over the timing and magnitude of future shifts in high-income macro policy may result in further episodes of volatility, says the World Bank. Vulnerabilities persist in several countries – including South Africa – that combine high inflation and current account deficits. The risk here is that the recent easing of international financial conditions will once again serve to boost credit growth, current account deficits and associated vulnerabilities.

According to the report, national budgets of developing countries have deteriorated significantly since 2007. In almost half of developing countries, government deficits exceed 3% of GDP, while debt-to-GDP ratios have risen by more than 10 percentage points since 2007. Fiscal policy needs to tighten in countries where deficits remain large, including Ghana, India, Kenya, Malaysia, and South Africa.

In addition, the structural reform agenda in many developing countries, which has stalled in recent years, needs to be reinvigorated in order to sustain rapid income growth.

“Spending more wisely rather than spending more will be key. Bottlenecks in energy and infrastructure, labour markets and business climate in many large middle-income countries are holding back GDP and productivity growth. Subsidy reform is one potential avenue for generating the money to raise the quality of public investments in human capital and physical infrastructure,” said Andrew Burns, lead author of the report.

Sub-Saharan Africa

In Sub-Saharan Africa strong domestic demand underpinned GDP growth of 4.7% in 2013, up from 3.7% the previous year. The regional aggregate was depressed by weak 1.9% growth in South Africa due to structural bottlenecks, tense labour relations and low consumer and investor confidence.

Excluding South Africa, average regional GDP growth was 6% in 2013. Fiscal and current account deficits widened across the region, reflecting high government spending, falling commodity prices, and strong import growth. Medium-term prospects for the region remain favourable, with GDP growth projected to remain broadly stable at 4.7%in 2014, before rising moderately to 5.1% in 2015 and 2016, supported by firming external demand and investments in natural resources, infrastructure, and agricultural production.

Growth is expected to be particularly strong in East Africa, increasingly supported by FDI flows into offshore natural gas resources in Tanzania, and the onset of oil production in Uganda and Kenya. Although growth will remain subdued in South Africa, it will pick up modestly in Angola and remain robust in Nigeria, the region’s largest economy.