The World Bank does not have very good predictions for this current year, apparently. But to be fair, they have very good reasons for shorten the world growth predictions for this 2016 due to the not so good development of the big world economies as China and Brazil. That is why the World Bank claimed that this year´s annual growth would have a downfall trend due to the chaos at the Chinese stock market and the poor development of Brazil´s economy.
The world´s Gross Domestic Product (GDP) in 2015 grew by 2.4, but this year the World Bank does not expect a growth over 2, 9%, what means 0, 4 percentage points less compared to the predictions made in mid 2015, according to the biannual report published earlier this week.
The World Bank states that the simultaneous weakness of the main emerging world markets threats the objectives of poverty decrease, against their contributions in the world´s growth in the last decade. China, who is in the middle of a economical transition, will slow down their expansion by 6, 7% against the 6, 9% of 2015, which means a 0, 3% drop compared to what was predicted six months ago and to their worst result back in 1990.
The second largest world economy suffers from months ago of financial turbulence episodes, this alone is pretty bad but on top of this, on Monday, their stock market drop by 7%. The projections revision is more drastic to other emergent countries already in recession like Brazil (-3, 6 basis points to -2, 5%) and Russia (-1, 4 basis points to -0, 7%). Both countries are being affected by the raw material prices downfall, primary products and the energy.
The countries with the highest incomes will have a better year, according to the World Bank. United States will grow by 2, 7% and the Euro zone by 1, 7%. In both cases the projection was reduce only one tenth. The responsible for the economical projections of the World Bank, Ayhan Kose, said that the strongest growth of the advanced economies will make up for, only partially, the risks of the persistent weakness of the main emergent countries. The entity warned about the other risks to the world economy like the geo political tension and the possible consequences of the interest rate increase of the United States. The chief economist of the World Bank, Kaushik Basu, warned that there are cracks on the surface and pointed out the risks of dangerous capital movement in the world.
Talking of a more specific case, Brazil could possibly be dragging Latin America in its economical development. In the case of Latin America and the Caribbean, the World Bank estimated that the region will end 2016 with a virtually invalid growth of 0, 1%, which represents a shortage of no less than 2, 3% compared to the reveal prediction last June. In 2015 the region had ended with economy in a relapse estimated by the World Bank to be in -0, 7%.
Brazil´s performance might be responsible for that, due to the fact that the World Bank cut out their growth prediction in no less than 3, 6%, the biggest shortage of all the report. The investments in Brazil have decreased since 2013, due to a loss of trust scenario that got deeper with the complaints about corruption that involved the Hydrocarbon State Company Petrobras and the fear of a fiscal deficit, according to the World Bank.
Besides all this predictions, the beginning of the year did not turned out to be a very good one. With the downfall of the Chinese stock market and the downfall of the oil prices, the world´s economical view looks cloudy. The Chinese mechanism which shutdown the market to stop the downfall has all the investors at the edge of doubt and they are waiting for the response of the Chinese government towards this situation.
On the other hand, the oil prices have gone down in the last couple of years and the countries that are members of the OPEC seem to not change their minds about reducing the oil prices. Due to the conflict between Saudi Arabia and Iran caused by the robbery and fire in the Saudi embassy in Teheran, the rest of OPEC countries keep their opinions straight and they do not want to reduce oil production in a market saturated by oil offers.
This situation has affected those countries which economy depends mainly on the oil sales, countries like Venezuela, Ecuador, Algeria and Nigeria. Their economy will be stumbling down because the national production is not much compared to their oil sales. Countries like Venezuela, which id going through a strong food scarce and that has a very poor national production, are having rough times because they lack money to turn on the national production of food and other basic products. Because of the many years oil money was enough to import all the food they could pay for, now that oil prices have gone down drastically and because they did not care about national production much, now they are struggling to get money to buy food for the people and even if they were many national companies, the money to produce came from the oil too.
We will see what the World Bank has to say in their next report and see if any country surprises us with a unexpected growth or if the stock market goes stable.