The World Bank is downgrading its 2016 global growth forecast to 2.4 percent from the 2.9 percent pace projected in January. The move is due to sluggish growth in advanced economies, stubbornly low commodity prices, weak global trade, and diminishing capital flows.
Economic activity is expected to decelerate in 2016. Higher disposable income and employment will boost private consumption, but growth will be affected by the slow start of investment projects financed by EU funds. As base effects from the oil price shock fade and domestic demand pressures build-up, inflation is expected to reach the 2-percent target in mid-2017. Over the medium-term, output growth is set to stabilize at around slightly above 2 percent in line with economy’s potential.
The world’s top energy exporter is enduring the longest economic downturn of Putin’s 16-year rule. It relies on crude oil export duties and extraction taxes for about 23 percent of its budget. The government is running the widest deficit since 2010 after a slump in oil prices and is looking for options to cover the gap, including selling state assets, cutting spending and discussing a tax overhaul.
WHILE politicians run around like headless chickens, the Bank of England, at least, is trying to stabilise the British economy. Within hours of the announcement of the EU referendum result, Mark Carney, the bank’s governor, reassured investors that the economy was sound. And on July 5th, through a piece of arcane but important financial regulation, the bank took the first real step to promote financial stability when it announced the relaxation of capital requirements for banks, in a bid to stave off a credit crunch.
Russia is on course to post its widest budget deficit since 2010 after oil prices tumbled to a 12-year low in January, reducing revenue for the state budget in the world’s largest energy exporter.
The Canadian dollar is expected to weaken further over the coming months as Britain's vote to leave the European Union boosts the U.S. dollar and with oil prices set to remain weak.
Directors emphasized the need for continuing structural reforms to support a successful transition and improve the efficiency of the economy. They saw merit in continued restraint in wage settlements and further reforms to reinvigorate productivity growth. Aligning public sector pensions with recent private sector reforms and reforms to sickness and disability pensions could increase labor force participation. Directors also saw scope for efficiency gains from reducing tax preferences for owner-occupied housing and relaxing supply restrictions in the housing market.
Kuwait's budget deficit reflects the impact lower oil prices have had on crude exporters, particularly Gulf Arab monarchies that rely on oil revenues to support generous subsidies, welfare benefits and public sector wages.
To make matters worse, evidence suggests that, after controlling for income levels, the responsiveness of consumption to income gains for most of the income distribution has weakened in recent years. This puts further downward pressure on consumption. Combined, these effects are estimated to translate to about 3½ percentage points of lost U.S. consumption over 1998–2013—equivalent to more than one year of total consumption growth.
Directors urged the authorities to accelerate structural reforms to boost growth and employment creation and facilitate income convergence with the EU. They highlighted the need to advance privatization and enhance the efficiency of the public sector, while removing bureaucratic impediments to doing business. Other priorities include further enhancing labor market flexibility to increase labor participation. Directors noted the importance of building political consensus to ensure broad support for the reforms.