News Column

World Bank cuts global economic growth forecast

June 11, 2014

Larry Elliott

The World Bank has cut its growth forecast for the global economy in 2014 following a weak start to the year in both rich and poor countries.

Bad weather in the US, tension in the Ukraine, the slowdown in China and political strife in countries such as Turkey will all delay an expected pick-up in activity, the bank said in its half-yearly Global Economic Prospects.

Its president, Jim Kim, expressed disappointment at the prospect of a third straight year of sub-5% growth in the developing world, which he said was insufficient to meet his aim of eradicating extreme poverty by 2030.

"Growth rates in the developing world remain far too modest to create the kind of jobs we need to improve the lives of the poorest 40%", Kim said.

"Clearly, countries need to move faster and invest more in domestic structural reforms to get broad-based economic growth to levels needed to end extreme poverty in our generation."

The bank expects the global economy to grow by 2.8% compared with the 3.2% predicted in January. Developing country expansion has been revised down from 5.3% to 4.8%, while expansion in high-income countries has been shaved from 2.2% to 1.9%.

After a sluggish start to 2014, the bank expects activity to accelerate during the rest of the year and for global growth to be 3.4% in 2015 and 3.5% in 2016. A stronger performance by the US and a slow recovery in the eurozone are expected to help developing countries by acting as markets for their exports.

However, the bank remains concerned about a number of factors that could hit the developing world - financial turmoil prompted by an end to the heavy doses of financial stimulus used by central banks over the past five years; the possibility of a hard landing in China, and the vulnerability of some emerging market economies.

Privately, it is worried that economic policy has remained loose for so long and that pressure to start returning policy to a more normal setting will become stronger.

"Markets remain skittish and speculation over the timing and magnitude of future shifts in high-income macro policy may result in further episodes of volatility. Also, vulnerabilities persist in several countries that combine high inflation and current account deficits - Brazil, South Africa and Turkey."

The bank added that the budgets of developing countries had worsened significantly since the financial crisis began in 2007. "In almost half of developing countries, government deficits exceed 3% of gross domestic product, while debt-to-GDP ratios have risen by more than 10 percentage points since 2007.

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Source: Guardian (UK)

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