WASHINGTON — The World Bank cut its global growth forecast this year to 2.4 percent as the world economy faces headwinds from a plethora of factors, including low commodity prices, weak global trade and sluggish growth in advanced economies.
In the “Global Economic Prospects” report released Tuesday, the bank revised its forecast downward to 2.4 percent growth from the 2.9 percent pace that was projected in January.
The new estimate is on track with the pace of 2015, which was widely considered “disappointing.”
The bank’s report said emerging markets and developing economies, primarily larger commodity exporters, have “struggled to adapt to lower prices for oil and some key commodities,” and accounted for half of the downward revision.
Advanced economies are expected to expand by 1.7 percent, which fell 0.5 percent below projections in January. The downgrade was due in large part to soft investment and worsening exports, the report said.
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“Despite a boost from lower energy prices and improvements in labor markets, advanced economy growth is expected to level off in 2016 rather than strengthen further as previously envisaged,” the report said.
Growth in economies that export commodities is projected to advance at a 0.4 percent pace, a downward revision of 1.2 percentage points from the January outlook.
“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.”
China, a major emerging economy, is forecast to grow at a 6.7 percent pace this year compared with 6.9 percent last year, while India’s “robust economic expansion” is expected to continue at 7.6 percent, the report said.
Brazil and Russia are forecast to remain in deeper recessions than was forecast in January, and South Africa is expected to grow at a 0.6 percent rate, down from the 0.8 percent that was forecast in January.
The report found an increase in potential risks to the emerging and developing economies due to a significant increase in private sector credit “fueled by an era of low interest rates and, more recently, rising financing needs.”
“As advanced economies struggle to gain traction, most economies in South and East Asia are growing solidly, as are commodity-importing emerging economies around the world,” said Kaushik Basu, chief economist and senior vice president at the World Bank. “However, one development that bears caution is the rapid rise of private debt in several emerging and developing economies. In the wake of a borrowing boom, it is not uncommon to find nonperforming bank loans, as a share of gross loans, to quadruple.”
On a regional basis, the bank is projecting a slowdown of 6.3 percent in East Asia and the Pacific, which remained unchanged from the report in January. Excluding China, the region is expected to grow 4.8 percent this year, on pace with growth in 2015.
Countries such as Thailand, Indonesia and Malaysia are expected to get a boost from rising investment, while strong consumption, combined with low commodity prices, is expected to help Thailand, the Philippines and Vietnam.
Contraction in Russia drove a downward revision for Europe and Central Asia to 1.2 percent this year, the report found.
“Geopolitical concerns, including flare-ups of violence in eastern Ukraine and the Caucasus and terror attacks in Turkey, weigh on the outlook,” the report said.
The region, excluding Russia, is expected to expand at a 2.9 percent growth rate.
The western part of the region will benefit the most from moderate growth in the euro area and stronger demand from “subdued” fuel costs.
The Latin America and Caribbean region is forecast to contract by 1.3 percent this year, after declining 0.7 percent in 2015 — “the first back-to-back years of recession in more than 30 years,” the report said.
The region is expected to start recovering in 2017 and gain momentum to around 2 percent by 2018. Brazil is expected to contract by 4 percent this year and see its recession spill over into 2017 against the backdrop of rising unemployment, shrinking real incomes and political uncertainty.
Among the few bright spots, South Asia is forecast to accelerate to 7.1 percent this year.
“Activity has remained resilient as domestic demand, the main driver of growth, remained robust,” the report said.
The region’s largest economy, India, showed strengthening activity along with Pakistan, Bangladesh and Bhutan.
“Most South Asian economies have benefited from the decline in oil prices, low inflation and steady remittance flows,” the report said.
The headwinds in the global economy, including low commodity prices, weak global activity and tighter financial conditions will also slow down growth in sub-Saharan Africa to 2.5 percent, down from a projected 3 percent in 2015, the report said.