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World Bank Downgrades Global Growth Forecast

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by , 01-21-2015 at 03:55 AM (1163 Views)
      
   
Despite an uptick in developing countries and strong momentum in the United States, the World Bank downgraded its global economic forecast citing weak prospects for the euro area and Japan.

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In its biannual report 'Global Economic Prospects' released Tuesday, the World Bank said global gross domestic product is expected to grow 3 percent in 2015, slower than the 3.4 percent estimated in June.

For 2016, the economy is projected to expand 3.3 percent instead of 3.5 percent. The bank predicted 3.2 percent growth for 2017.

According to the World Bank, downside risks to the outlook are persistently weak global trade, possibility of financial market volatility, the extent to which low oil prices strain balance sheets in oil producing countries, and the risk of a prolonged period of stagnation or deflation in the euro area or Japan.

Underneath the fragile global recovery lie increasingly divergent trends with significant implications for global growth, the lender said.

Growth in the United States is expected to accelerate to 3.2 percent this year, before moderating to 3 percent and 2.4 percent in 2016 and 2017.

The forecast for euro area growth is a sluggish 1.1 percent in 2015, with the growth in the region expected to accelerate to 1.6 percent in 2016-17. Japan' growth will rise to 1.2 percent in 2015 and 1.6 percent in 2016, the bank said.

"Worryingly, the stalled recovery in some high-income economies and even some middle-income countries may be a symptom of deeper structural malaise," said Kaushik Basu, World Bank chief economist and senior vice president.

At the same time, China is undergoing a carefully managed slowdown with growth easing to a still-robust 7.1 percent in 2015, 7 percent in 2016 and 6.9 percent in 2017, the World Bank said.

Benefiting from lower oil prices, India is expected to grow 6.4 percent in 2015 and 7 percent in 2016-17.

Developing countries expanded 4.4 percent in 2014 and the growth in the region is expected to edge up to 4.8 percent this year, strengthening to 5.3 percent and 5.4 percent in 2016 and 2017, respectively. In June, the bank projected 5.4 percent growth for 2015 and 5.5 percent for next year.

World Bank Group President Jim Yong Kim urged developing countries to deploy their resources judiciously and to undertake structural reforms that invest in people.

While the fall in oil prices help lower inflation and reduce current account deficits in Brazil, Indonesia, South Africa and Turkey, it will weaken activity in exporting countries.

The Russian economy is projected to contract by 2.9 percent in 2015, getting barely back into positive territory in 2016 with growth expected at 0.1 percent.

Lower oil prices will lead to sizeable real income shifts from oil-exporting to oil-importing developing countries, Ayhan Kose, Director of Development Prospects at the World Bank said.


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