The latest Global Economic Prospects (GEP) report of World Bank has said that leading the growth chart of major economies, India with an expected growth rate of 7.5 percent this year is set to surpass China. The report stated that in India which is an oil importer, reforms have buoyed confidence and falling oil prices have reduced vulnerabilities, paving the way for the economy to grow by a robust 7.5 percent rate in 2015, while China is projected to grow at 7.1 percent and developing countries are now projected to grow by 4.4 percent this year, with a likely rise to 5.2 percent in 2016, and 5.4 percent in 2017.
The report has though stated that developing countries face a series of tough challenges in 2015, including the looming prospect of higher borrowing costs in a new era of low prices for oil and other key commodities. Portfolio flows to developing countries remained subdued in 2015, but low bond yields, and ample liquidity continued to encourage investor interest in bond issuance, particularly in China and other East Asian countries.
The World Bank downgraded its outlook for global economic growth this year amid a broad-based slowdown in emerging markets and softer output in the U.S. It now expects the world economy to grow by 2.8%, 0.2 percentage point slower than it estimated in January. The World Bank in its report said that sharp contractions in Brazil and Russia, alongside weaker growth in Turkey, Indonesia and scores of other developing economies are offsetting healthier growth in Europe and Japan.
The report has also stated that borrowing costs are expected to rise as the Fed prepares to raise interest rates for the first time in nearly a decade. That prospect has also sparked a strong dollar rally, tightening the squeeze on developing-country governments and corporations that borrowed dollars but whose income is denominated in local currency and Fed’s liftoff and long-term tightening cycle combined with domestic uncertainties could fuel major swings in financial markets, capital outflows and contagion throughout emerging economies.
