Emerging nations’ drive to catch up with the incomes of the developed world has been set back decades by the slowdown in their economies and the impact of the commodities slump, according to World Bank research.
The bank on Tuesday downgraded its global growth forecast because of what it said was a much worse than expected performance by commodity-exporting countries. It expects the global economy to grow 2.4 per cent this year, compared with a previous forecast of 2.9 per cent, with emerging commodity exporters as a group set to expand just 0.4 per cent — down from 3.2 per cent as recently as 2013.
That downgrade came alongside a new analysis showing that for the first time since the turn of the century a majority of emerging and developing economies were no longer closing the income gap with the US and other rich countries.
Last year just 47 per cent of 114 developing economies tracked by the bank were catching up with US per capita gross domestic product, below 50 per cent for the first time since 2000 and down from 83 per cent of that same sample in 2007 as the global financial crisis took hold.
That, the bank’s economists warned, would have a meaningful impact on the future people in those countries could expect.
“Whereas, pre-crisis, the average [emerging market] could expect to reach advanced country income levels within a generation, the low growth of recent years has extended this catch-up period by several decades,” they wrote.
Leading International Monetary Fund officials have warned in recent months that the so-called process of “economic convergence” had slowed to two-thirds of its pre-crisis rate. But the warning from the bank paints an even starker picture.
In the five years before the 2008 financial crisis, emerging markets could expect to take an average of 42.3 years to catch up with US per capita GDP, according to the bank’s analysis.
But over the past three years, as major emerging economies such as Brazil, Russia and South Africa have slowed or fallen into recession, the slower average growth means the number of years it would take to catch up with the US has grown to 67.7 years.
For frontier markets, those more fragile economies further down the development scale, such as Nigeria, the catch-up period more than doubled from 43.1 years to 109.7 years.
The slowdown has also led to a surge in demand for World Bank loans. The lender expected to make a non-crisis record of up to $30bn in loans this year.
Ayhan Kose, lead author of the bank’s Global Economic Prospects report, said the drop in commodity prices that began in 2011 and accelerated with the oil price slump had created a divide in emerging economies.
Many commodity-importing developing economies such as China and India had benefited from the lower prices and were proving relatively resilient. But other commodity-exporting countries, which in cases such as Nigeria have begun to exhaust the financial buffers built up in the boom, were now confronting policy dilemmas such as how to tackle fiscal deficits caused by falling oil revenues and slumping currencies.
The slowdown rate will also hurt efforts to cut poverty, according to Mr Kose.
The World Bank last year raised its international poverty line to $1.90 a day and said global extreme poverty had fallen below 10 per cent of the population for the first time. But reliable poverty data take years to collate and that proclamation was based on an estimate that itself was based on developing economies repeating their pre-crisis growth patterns. As a result, it is viewed sceptically by poverty experts both inside and outside the bank.
“While growth is weak it makes it much more difficult to reduce poverty. The main cure for poverty is economic growth,” Mr Kose said.