The Global Manufacturer

World Bank Lowers Outlook for Global Economy

Despite a “tailwind” from high-income countries such as the United States, developing countries are headed for another year of sub-5% growth, contributing to a reduced forecast for global economic growth, the World Bank reported today.

Bad weather in the US, the crisis in Ukraine, rebalancing in China, political strife in several middle-income economies, slow progress on structural reform, and capacity constraints are all contributing to slower growth than had been forecast in January, the bank stated.

"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 percent," said World Bank Group President Jim Yong Kim. "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."

Developing countries are now expected to grow their economies 4.8% this year, rather than the January estimate of 5.3%. The bank said growth will pick up in 2015 and 2016 to 5.4% and 5.5%. China’s GDP is expected to grow by 7.6% this year, but the bank cautioned that this would depend on the success of Chinese authorities in their efforts to rebalance the economy toward more domestic consumption and to tighten credit.

For high-income countries (U.S., Europe and Japan), the bank lowered its growth projection from 2.2% for 2014 to 1.9%, but expects these economies to accelerate to 2.4% in 2015 and 2.5% in 2016. The World Bank said the U.S. economy will grow 2.1% this year, slowed by the impact of severe weather in the first quarter, down from its January prediction of 2.8% growth. For 2015 and 2016, the bank expects growth at a 3.0% rate, buoyed by fiscal consolidation, rising employment and an upturn in investment.

The recovery in high-income economies will be good news for developing nations, the bank noted. These countries will inject $6.3 trillion of additional demand into the world economy, compared to $3.9 trillion in the past three years. High-income countries will contribute almost half of global growth in 2015 and 2016, compared to less than 40% in 2013.

“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,” said Kaushik Basu, senior vice president and chief economist at the World Bank. “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.”

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