News Column

Global growth likely to slow down: World Bank

June 11, 2014

Bloomberg News

Washington:The World Bank cut its global growth forecast amid weaker outlooks for the United States, Russia and China, while calling on emerging markets to strengthen their economies before the Federal Reserve raises interest rates.

The Washington-based lender predicts the world economy will expand 2.8 per cent this year, compared to a January projection of 3.2 per cent. The US forecast was reduced to 2.1 per cent from 2.8 per cent while outlooks for Brazil, Russia, India and China were also lowered. The setbacks may be temporary: the 2015 estimate for world economic growth was unchanged at 3.4 per cent.

"The global economy got off to a bumpy start this year buffeted by poor weather in the United States, financial market turbulence and the conflict in" Ukraine, the World Bank said in its Global Economic Prospects report on Wednesday. "Despite the early weakness, growth is expected to pick up speed as the year progresses."

Developed economies, where domestic demand is improving as fiscal pressure eases and labor markets recover, are providing the global expansion with momentum just as their developing counterparts fail to accelerate. The bank is projecting growth in China and Brazil will slow this year from 2013.

In the report, the World Bank warned emerging markets that the next bout of financial unrest may catch them off guard, recommending smaller budget deficits, higher interest rates and measures to boost productivity.

Federal policy

In the US, Fed policy makers have indicated that they expect the benchmark interest rate, which has been near zero since December 2008, will remain low at least until next year.

Over the past year, emerging-market assets have recovered from two sell-off periods, including one after the Fed first indicated in May 2013 plans to trim US monetary stimulus. The extra yield investors demand to hold dollar-denominated debt in developing nations over US Treasuries has since decreased to the lowest since January 2013.

That recovery is giving countries a respite to strengthen their economies before the inevitable increase in borrowing costs that will follow the Fed's interest-rate increase, said World Bank economist Andrew Burns, the lead author of the report.

"Our advice to these countries is 'listen, you've got a window here of a year, let's see what we can do to reduce those vulnerabilities between now and then so that when it does come, you don't get caught up in the overall problem," he said in an interview.

Ukraine turmoil

The bank cut its 2014 forecast for Russia's growth to 0.5 per cent from a January prediction of 2.2 per cent. It sees Ukraine contracting 5 per cent.

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Source: Times of Oman

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