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Why the World Bank Forecasts Weaker Growth in Global Economies

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Why the World Bank Forecasts Weaker Growth in Global Economies PART 1 OF 6

Why Did the World Bank Slash Global Growth Outlook?

World Bank cuts US growth forecast to 1.9% from 2.7%

The World Bank published its June global economic prospects (or GEP) report on June 7, 2016. There was a downward revision of global growth forecasts compared to the January GEP. The report suggested that weakness in the global economy has persisted since the last report.

The risks to the global economy have also become more pronounced with the following:

  • political uncertainties
  • effectiveness of quantitative easing measures by some advanced economies
  • pace of a rate hike in the United States (SPY)
  • deteriorating conditions in commodity exporting nations

The World Bank cut growth forecasts of the United States by 0.8% to 1.9% in 2016. The forecasts for 2017 and 2018 were also revised down to 2.2% and 2.1%, respectively.

Why Did the World Bank Slash Global Growth Outlook?

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Is the Eurozone the safest bet among advanced economies?

The advanced economies of the world, which include the United States, the Eurozone (VGK), and Japan (EWJ), suffered a downward growth forecast revision of 0.5%, according to the World Bank. While US and Japanese forecasts were revised down by 0.8%, the Eurozone only had a downward revision of 0.1%.

The World Bank said that recovery in the Eurozone is proceeding at a modest pace with the support of extreme easing measures in terms of monetary policy and low oil prices.

India and China are the strongest among BRIC nations, according to the World Bank

The Russian and Brazilian economies, which are closely tied to commodity prices, suffered a heavy downward revision in the World Bank’s June GEP. Russian (RSX) growth forecasts were revised down by 0.5%, while Brazilian (EWZ) forecasts were revised down by a more compounded 1.5%.

The Brazilian economy’s downward revision was also attributed to ongoing political uncertainties. India and China (FXI) were the forerunners among the BRIC (Brazil, Russia, India and China) nations with the Indian forecast revised down only by a modest 0.2%. The Chinese forecast remained unchanged.

The Nigerian economy suffered the highest downward revision since its forecast for 2016 was cut by a massive 3.8%. This was primarily attributed to heavy dependence on oil exports and other reasons such as the shortage of electricity, security concerns, and monetary policy.

The Global X MSCI Nigeria ETF (NGE), an ETF with heavy Nigerian exposure, rose 0.14% on June 7, 2016, despite the downward revision in growth forecasts by the World Bank.

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