2016 is looking more like the Year of the Bear than the Year of the Monkey. Following the recent admission by the IMF that growth is looking less than stellar, the World Bank is out today spooking already fragile markets with a growth warning. Given that forecasts have always proven to be overoptimistic and signs that Brazils economy is now heading into the toilet (sorry, the abyss), maybe the downgrade in growth should be revised to no growth:
Weak performance of major emerging market economies will tamp activity overall, as will anemic showings from developed countries such as the United States.
Global growth should accelerate to 2.9 percent this year from 2.4 percent in 2015, the bank said, but that still represents a downgrade from its June forecast for 3.3 percent growth.
“Given the size and global economic integration of the largest emerging markets – Brazil, the Russian Federation, India, China, and South Africa, or the so-called BRICS – the simultaneous slowdown underway in all but one of them could have significant spillovers to the rest of the world,” the report said.
The bank forecast the Russian and Brazilian economies would continue to contract in 2016 rather than return to growth as it had estimated in its previous outlook in June.
Real gross domestic product in Russia could shrink at a 0.7 percent annual pace this year, it said. In June it had forecast 0.7 percent GDP growth for 2016. The bank estimates the Russian economy shrank by 3.8 percent in 2015.
The real concern(pun intended) in Brazil is where the forecast has been woefully wrong as the economy shrunk nearly 4% in 2015 and is facing further retraction this year.
Brazil is facing a huge inflation breakout on the back of a falling real against the USD as the central bank stands out (and returns to “developing” status) with significant interest rate rises to stem the tide.
More from Bloomie where the estimates put this recession into the “worse since 1901” category:
Brazil’s policy makers are struggling to control the fastest inflation in 12 years without further hamstringing a weak economy. Finance Minister Nelson Barbosa, who took the job in December, has faced renewed pressure to moderate austerity proposals aimed at bolstering public accounts and avoiding further credit downgrades. Impeachment proceedings and an expanding corruption scandal have also been hindering approval of economic policies in Congress.
Consumer confidence as measured by the Getulio Vargas Foundation in December reached a record low. Business confidence as measured by the National Industry Confederation fell throughout most of last year, rebounding slightly from a record low in October.
The last time Brazil had back-to-back years of recession was 1930 and 1931, and has never had one as deep as that forecast for 2015 and 2016 combined, according to data from national economic research institute IPEA that dates back to 1901.
Given the lack of accuracy with this result, the floundering growth in Europe also undershooting with a hamstrung ECB and now the ructions coming out of China, perhaps the World Bank needs to step back and look at their other forecasts which are still quite rosy.
They’ve quite rightly curtailed Chinese growth estimates to mid 6% instead of 7% plus, but that could easily fall to 5% or lower as Yuan devaluation continues apace.
Watch this space Australia, you could be next.