The World Bank’s Space Exploration Modules

The World Bank’s Global Economic Prospects publication predicted another developing region year of below 5 percent GDP growth despite global stimulus and the chance to open “fiscal space” by further reducing endemic fuel subsidies. It postulated tighter external financing conditions which could erode record runs of sovereign issuance increasingly from poorer countries and corporate access from Chinese developers and other borrowers facing domestic credit constraints. East European currencies will continue to be whipsawed by Eurozone and Russia-Ukraine conflict developments and commodity prices in agriculture and metals will also be “soft” through the medium term in part due to the stronger dollar effect. For most oil exporters current values are under budget breakeven levels but large accumulated asset and reserve pools can cushion the blow. World trade continues to increase marginally with new supply chains, import demand compression and export credit scarcity, the Bank believes.  “Disappointing” 2014 GDP growth at 4.5 percent was due to terms of trade, policy confidence and monetary shifts across emerging and frontier economies, with fiscal deficits particularly high in the latter covered by debut bonds as government debt doubled post-crisis from 30 to 60 percent of GDP. Inflation has vacillated and was above target in Brazil and Turkey as Hungary and neighbors entered deflation. Double-digit unemployment has festered in the Middle East/North Africa and big Asian and European markets are experiencing population and productivity slowdown. Low income countries in Africa and elsewhere averaged 6 percent growth but often rely on remittances to aid domestic consumption which fell to CIS recipients from Russia. To cut global poverty as defined by $1.25 daily income will require sustained 4 percent output expansion as the Millennium Development Goals are reviewed at an upcoming UN conference. Average developing country bond maturity has lengthened since 2008 and approaches 10 years for Latin American corporates but foreign ownership of local government paper is often at 20-30 percent in major markets. “Disorderly unwinding” of China’s debt buildup is a small probability with budget and international reserve capacity and bank and capital controls but 5 percent decline in the 40 percent fixed investment rate would shave half a point from global activity. The Ebola epidemic may cost West Africa from $3-30 billion depending on containment progress but the tax revenue and health system implications will last beyond the outbreak course as cross-border commercial and travel patterns are also interrupted.

The report urges China to continue its campaign against shadow banking and implement other changes from a 2013 blueprint including deposit insurance and municipal bond development. For the emerging world it expects more accommodative monetary steps with attention to foreign currency risks but doubts the ability to conduct countercyclical fiscal policy as in the recent past with primary balances in three-quarters of international capital market-access members below the stability threshold. Structural reform priorities include better licensing, tax, customs and judicial practice as well as bottleneck removal in the infrastructure space, the Bank concludes.