World Bank Lowers 2014 Global Growth Forecast As Developing Nations DragWednesday, June 11, 2014 > 09:47:35
Global economic growth in 2014 is likely to be weaker than expected, with the poor weather in the U.S., financial market turbulence and the Ukrainian issue serving as drags, the World Bank said in its latest World Economic Prospects report released late Tuesday.
The bank lowered its global economic growth forecast for 2014 to 2.8% from the 3.2% it estimated earlier. At the same time, the World Bank left its forecast for 2015 and 2016 broadly unchanged at 3.4% and 3.5%, respectively.
Notwithstanding the toned down expectations for the global economy as a whole, the World Bank said the acceleration in 2014 growth would come from high-income countries, mainly the U.S. and the euroarea nations. Accordingly, growth in high income countries is expected to accelerate to 1.9% in 2014 from 1.3% in 2013. A further pick up in growth to 2.4% and 2.5% is estimated for 2015 and 2016, respectively.
The report stated that the share of high income companies in the total growth will increase to 50% in 2015 from 40% in 2013, resulting in triggering higher import demand from these countries and consequently export growth in developing countries.
The World Bank expects the euro area countries to grow by 1.1% in 2014, while it lowered its growth forecast for the U.S. to 2.1% from 2.8% it estimated earlier, given the contraction in GDP experienced by the world's largest economy in the first quarter.
The faster rates of growth in high-income economies may inject $6.3 trillion more to the global demand in the next three years. This is notably more than the contribution in the past three years and is more than the contribution the developing countries expect, the report said.
Developing countries are expected to grow by 4.8%, less than the 5.3% growth estimated in January. The anticipated weakness is premised on capacity constraints and an eventual tightening of financial conditions. With activity expected to firm up over the course of 2014 after the weak start to the year, the growth in these countries are expected to firm up and accelerate to 5.4% in 2015 and to 5.5% in 2016.
China's growth is expected to slowdown to 7.6% in 2014 and further to 7.5% in 2015 and 7.4% in 2016. On the other hand, the World Bank sees India growing by 5.5% in 2014, faster than the 4.7 growth in 2013.
The World Bank stated that the developing countries could be constrained by most economies in the region growing at close to potential and tightening global financial conditions. Restructuring underway in China is also expected to pose a risk to growth.
East Asian and Pacific economies, which are growing close to potential, are expected to see a modest slowdown in growth to 7% in 2016. Though growth in Latin American countries are constrained by capacity, Argentina, Brazil and Mexico could lend support to the growth of the region. The World Bank estimates growth in Sub-Saharan Africa to firm up to 5.1% in 2016 from 4.7% in 2014. Meanwhile, Central Asian and European growth could be hurt by the skirmish between Russia and Ukraine.
At the same time, the World Bank expects a brisk pick up in the pace of growth in the Middle-East and North Africa and in the South Asia.
The World Bank also noted that economic adjustments over the past year reduced the financial vulnerabilities. Current account deficit in some of the negatively affected economies and capital flows to developing countries have bounced back. Bond yields have decreased and stock markets showed significant recovery in developing countries. However, Countries like Brazil, South Africa and Turkey with high inflation and current account deficits remain vulnerable, the World Bank said.
Kaushik Basu, Senior Vice President and Chief Economist at the World Bank, said, "The financial health of economies has improved. With the exception of China and Russia, stock markets have done well in emerging economies, notably, India and Indonesia. But we are not totally out of the woods yet. A gradual tightening of fiscal policy and structural reforms are desirable to restore fiscal space depleted by the 2008 financial crisis. In brief, now is the time to prepare for the next crisis."