Thu, Jan 16, 2014 - Page 15 News List

World Bank forecasts economic pickup

‘UNEVENTFUL’:After years of economic turmoil, a gradual pickup is good news, the bank’s chief economist said, but warned that risks, such as rising interest rates, remain


The global economy is slowly picking up steam, led by advanced economies appearing to turn the corner after five years of financial crises and recession and a continued good performance by China, the World Bank said on Tuesday.

However, the bank said that growth prospects remain vulnerable to rising interest rates and potential volatility in capital flows as the US Federal Reserve eases up on the extraordinary stimulus it has been providing to the world’s largest economy.

The bank’s twice-yearly Global Economics Prospects report says global growth is expected to firm from 2.4 percent last year to 3.2 percent this year and 3.4 percent next year.

The report said that the momentum that countries such as the US and Japan are building up should support stronger growth in the developing countries.

Presenting the findings, World Bank chief economist Kaushik Basu said the outlook for the global economy was uneventful.

“It’s a strange world we live in that news that an uneventful economy ahead of us is meant to be good news,” Basu said at a news conference at the bank’s Washington headquarters.

“But not surprising” that this is the case after years of economic turmoil, he added.

The report says that although risks to the global economy have subsided, they have not been eliminated and include fiscal uncertainty in the US, protracted recovery in the eurozone and possible setbacks in China’s restructuring policies.

It said the Fed’s decision to begin trimming its intervention in the market, known as quantitative easing, “is welcome as it reflects increasingly convincing signs that a self-sustaining recovery is under way.”

It said the most likely scenario is for the tapering off to follow an orderly trajectory and for global interest rates to rise only slowly, reaching 3.6 percent by mid-2016.

In Japan, large doses of fiscal and monetary stimulus have sparked a strong cyclical upturn, but keeping this going will require structural reforms, it said.

In the eurozone, banks have gone a long way to restructuring themselves, but that sector remains weak, it said. Details on a fully fledged banking union are still being worked out “and the currency bloc remains susceptible to shock,” it said.

The report said that although developing country growth last year was relatively weak, at an estimated 4.8 percent, “it has been firming in recent months, partly reflecting strengthening growth in high-income countries, but also a recovery from earlier weakness in large middle-income countries, such as India and China.”

Looking at regional trends, the bank said growth would be flat in East Asia and the Pacific, modest in Latin America and the Caribbean, and held back in the Middle East and North Africa because of social and political strife.

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