The World Bank downgraded its forecast for the global economy this year, citing a bitter US winter and the political crisis in Ukraine.
In an outlook released on Tuesday, the bank still expects the world economy to grow faster — 2.8 percent this year versus 2.4 percent last year — but its new estimate is weaker than the 3.2 percent expansion it had predicted in January.
The US economy — by far the world’s largest — shrank at an annual rate of 1 percent from January to March, chilled by an unusually nasty winter. The political crisis in Ukraine dragged growth in Eastern Europe and Central Asia.
Together, those factors will “delay the recovery we talked about in January but not derail it,” World Bank economist Andrew Burns told reporters.
Aided by very-low interest rates, the world’s wealthiest countries would expand 1.9 percent this year, up from 1.3 percent last year, the bank said. In developing countries, growth is expected to stay flat at 4.8 percent.
In its twice-yearly Global Economics Prospects report, the World Bank estimates that the 18 European countries that use the euro currency would grow 1.1 percent collectively this year after shrinking in 2012 and last year. It sees the US economy recovering from the weak first quarter and growing 2.1 percent this year, up from 1.9 percent last year.
Overall, the global economy is expected to expand 3.4 percent next year and 3.5 percent in 2016.
The rate of economic growth has stalled in China and other developing countries that had bounced back quickly from the financial crisis of 2008-2009. China’s economy is expected to decelerate steadily, from 7.7 percent growth last year to 7.6 percent this year to 7.5 percent next year and 7.4 percent in 2016.
Central banks, including the US Federal Reserve, have been supporting economic growth by keeping interest rates low. Last week, the European Central Bank (ECB) announced additional rate cuts and took the historic step of imposing a negative interest rate — charging banks for deposits with the ECB in an effort to prod them to make more loans instead of hoarding money.
Burns said the ECB’s moves to protect Europe’s fragile recovery were “appropriate” and “go in the right direction.”
However, he and other economists worry about what will happen when the central banks declare their mission accomplished and let interest rates rise again. Higher rates in the US and Europe likely will lure investment away from developing countries. If the shift occurs too quickly, it could damage developing countries’ economies and cause chaos in their financial markets — a potential rerun of the Asian financial crisis of 1997-1998.
Other risks to the World Bank’s growth forecast include continued tension in Ukraine, political instability in Syria and Thailand and the possibility that China’s economy slows faster than expected.