Low oil prices create ‘window of opportunity’ for China and India - World Bank
Battered oil prices “creates a window of opportunity for oil importing countries, such as China and India; we expect India’s growth to rise to 7 percent by 2016. What is critical is for nations to use this window to usher in fiscal and structural reforms, which can boost long-run growth and inclusive development,” Kaushik Basu, one of the main authors of the report, and the World Bank Chief Economist, writes in the report published Tuesday.
Emerging markets can use sagging energy prices to their advantage to build up financial reserves. Inflation, or the price of goods, is likely to remain low, delaying wealthy countries from raising interest rates, which bumps up the cost of borrowing.
“In Brazil, Indonesia, South Africa and Turkey, the fall in oil prices will help lower inflation and reduce current account deficits, a major source of vulnerability for many of these countries,” the report says.
— NRDC India (@NRDC_India) January 11, 2015
The World Bank publishes its Global Economic Prospects twice a year, once in June and again in January. Overall, global economic growth is slated to increase by 3 percent, up from June’s 2.6 percent.
Growth in Europe and Central Asia will remain sluggish, exacerbated by the Ukraine crisis. Economic growth in developing
Europe and Central Asia was already expected to have slowed to less than 2.4 percent, according to the last forecast given by the Washington-based institution.
“Recession in Russia holds back growth in the Commonwealth of Independent States whereas a gradual recovery in the euro area should lift growth in Central and Eastern Europe and Turkey,” the report says.
Sustained low oil prices will hurt economic activity in major exporting countries, such as Russia, which will likely see its economy decline by 2.9 percent in 2015, the World Bank says.
In neighboring Ukraine, GDP will fall by 2.3 percent in 2015, a major revision from the Bank’s minus 1 percent estimate in its previous report. Kiev is weighed down by external debt and a high budget deficit.
“Risks to the global economy are considerable. Countries with relatively more credible policy frameworks and reform-oriented governments will be in a better position to navigate the challenges of 2015,” concluded Franziska Ohnsorge, lead author of the report.
The Hryvnia, Ukraine's national currency, lost 85 percent against the US dollar in 2014, making it the worst performing worldwide, with Russia second as the ruble lost 46 percent.
"Ukraine's economy is facing high levels of uncertainty. In the baseline scenario, which assumes no further escalation, we expect a slowdown in 2015 and the recovery in the 2016 and 2017 years," the report said.