News Column

Geopolitical strife looms over global economy

June 12, 2014

Gulf News

If there was evidence needed that the international economy is symbiotically and inextricably tied to national political events, then the latest forecast from thew World Bank is indeed proof enough. On Wednesday, the World Bank trimmed its economic outlook for the second half of the year. This was in part based on poor weather conditions in the US in late winter and early spring that led to a decline in output and demand, but also on the impact the instability caused by the Ukraine crisis is having on output in Russia where international sanctions are taking effect and on western Europe itself.

The forecast does expect a pickup in economic activity as the year draws to a close, when mature and richer national economies benefit from a lessening in austerity measures, increased output and more new workers joining the payrolls of companies.

For investors, the World Bank forecast provides some positive news as long as there is greater political certainty and stability. However, for all of the positives on the global economy, there are troubling signs on the geopolitical front that can potentially derail greater growth. In the South China Sea, tensions continue to simmer, with China squaring off against Vietnam, Malaysia, Cambodia, the Philippines and Japan over marine territorial claims. While the Ukrainian situation has at least stabilised under the new presidency of Petro Poroshenko, the crisis has a propensity to deteriorate. And given the current events in Iraq, the World Bank forecast may be a little too positive.

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Source: Gulf News (United Arab Emirates)

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