The World Bank — citing stagnation in Europe and Japan, and a slowdown in China — downgraded its forecast for the global economy this year. It also reported that world economic growth came in below expectations last year.
The bank predicts the world economy will expand 3 percent this year, up from 2.6 percent last year. In June last year, World Bank economists had forecast 3.4 percent global economic growth this year and 2.8 percent last year.
“The recovery has been sputtering in the euro area and Japan as legacies of the financial crisis linger... China, meanwhile, is undergoing a carefully managed slowdown,” the bank said on Tuesday, in the first of its twice-yearly Global Economic Prospects reports for this year.
Plunging oil prices and stronger growth in the US are expected to help boost global growth this year.
The bank expects the US economy to grow 3.2 percent this year, up from 2.4 percent last year.
Growth among the 19 countries that use the euro is expected to pick up modestly — to 1.1 percent this year from 0.8 percent last year. Likewise, the Japanese economy is expected to rebound to 1.2 percent growth this year from 0.2 percent last year.
The bank expects China’s economy to expand 7.1 percent this year, down from 7.4 percent last year. The slowdown reflects in part the Chinese government’s effort to rein in excessive lending and wasteful investment.
Overall, the bank expects high-income countries to grow 2.2 percent this year, up from 1.8 percent last year. Developing countries will grow 4.8 percent, an improvement from 4.4 percent last year.
The bank sees risks that could spoil its forecast. There is potential for a financial crisis if investors pull money out of emerging markets to take advantage of rising interest rates and improving economic prospects in the US. That could cause emerging market currencies to plummet and squeeze companies that borrowed in US dollars — a partial replay of the Asian financial crisis from 1997 to 1998.
Conflict in Ukraine and the Middle East could disrupt economic growth. The Chinese economy could tumble into a “disorderly slowdown.” Sub-Saharan African economies, expected to grow a healthy 4.6 percent this year, could be devastated instead if the Ebola outbreak is not contained.
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