World Bank warns of weak economic growth in emerging markets like Kenya

The World Bank on Wednesday warned of weak economic growth among major emerging markets like Kenya this year, a situation it said threatens the achievement of the goals of poverty reduction and shared prosperity in the developing nations.

In its January 2016 Global Economic Prospects, the Bretton Woods institution said the simultaneous weakness in most major emerging markets will also weigh negatively on global growth in 2016.

The bank consequently urged developing nations to ring fence their economies ahead of the expected slowdown amid projections that developing economies will expand by 4.8 per cent in 2016, less than expected earlier but up from a post-crisis low of 4.3 per cent in 2015.

"More than 40 percent of the world's poor live in the developing countries where growth slowed in 2015. Developing countries should focus on building resilience to a weaker economic environment and shielding the most vulnerable.

"The benefits from reforms to governance and business conditions are potentially large and could help offset the effects of slow growth in larger economies," said World Bank Group President Jim Yong Kim.

GEOPOLITICAL TENSIONS

World Bank Group Vice President and Chief Economist Kaushik Basu echoed similar sentiments, tipping developing nations to adopt a combination of fiscal and central bank policies in “mitigating these risks and supporting growth".

Risks to the economic outlook, the bank said, include financial stress around the US Federal Reserve's tightening cycle and heightened geopolitical tensions.

"There is greater divergence in performance among emerging economies. Compared to six months ago, risks have increased, particularly those associated with the possibility of a disorderly slowdown in a major emerging economy," said Mr Basu.

According to the report, firmer global growth ahead will depend on continued momentum in high income countries, the stabilization of commodity prices, and China's gradual transition towards a more consumption and services-based growth model.

The report said the slowdown in emerging market economies is likely to impact global economic activity, which is still expected to still pick up modestly to a 2.9 per cent pace, from a 2.4 per cent growth in 2015, as advanced economies gain speed.

Global economic growth was less than expected in 2015, when falling commodity prices, flagging trade and capital flows, and episodes of financial volatility sapped economic activity.

BRIGHT SPOT

In 2016, growth is projected to slow further in China, while Russia and Brazil are expected to remain in recession in 2016. The South Asia region, led by India, is projected to be a bright spot.

The recently negotiated Trans-Pacific Partnership could provide a welcome boost to trade.

Some experts had earlier warned that risks to the Kenyan economy remain even as Treasury Cabinet Secretary Henry Rotich exuded optimism that the economy would exhibit resilience in 2016.

“Looking ahead in 2016 and near-term, our economy will remain resilient and we should see our economy growing by at least over 6 percent on the back of favourable weather, recovery in tourism, and continued strong investment as the business environment improves.

"Completion or near -completion of several infrastructure projects initiated by the Jubilee administration including the Standard Gauge Railway should accelerate growth.

"We will continue to be prudent in our fiscal program ahead of the general election in 2017. In sum, I am sanguine about our growth outlook and that key jubilee programs will be attained,” Mr Rotich said as the year closed.

Although unlikely, a faster-than-expected slowdown in large emerging economies could have global repercussions, said the report.