World Bank sees global economy at "turning point", but concerns remain

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The World Bank issued its new "Global Economic Prospects" (GEP) report last Tuesday and predicted a strengthening of global economic growth, mostly because of a beginning shift away from self-inflicted misery in the policies adopted by advanced-economy governments: "Most of the acceleration is expected to come from high-income countries, as the drag on growth from fiscal consolidation and policy uncertainty eases ...".

The acceleration is relative.

According to the GEP report, GDP growth will be below pre-crisis levels in most countries.

The Bank predicts US GDP growth will advance from 1.8 per cent in 2013 to 2.8 per cent in 2014; the euro area will experience 1.1 per cent growth in 2014 after two years of recession; but Japan will see a slight decline (1.4 per cent GDP growth in 2014 versus 1.7 per cent in 2013).

The Bank scaled down its earlier growth predictions for developing regions: growth in 2014 will remain at the 2013 level of 7.2 per cent in East Asia, reflecting the lowest GDP increases in 15 years in China (still high by international standards, at 7.7 per cent); other developing regions are expected to experience slight increases to regional rates varying between 2.8 and 5.7 per cent in 2014.

However, the Bank cautions that in developing countries, "growth prospects remain vulnerable to headwinds from rising global interest rates and potential volatility of capital flows" with the expected tapering of monetary stimulus in the United States.

The GEP report states that with an "orderly tightening" of financial conditions the impact on developing economies should be modest.

The report observes that mere speculation about monetary tapering in mid-2013 led to a significant disruption of capital flows and a growth slowdown in several large emerging-market economies. "Depending on the severity of the market reaction [to tapering], capital flows to developing countries could be cut by 50 per cent or more for several months." An expected third consecutive year of reduction in global commodity prices will also have a negative impact on the GDPs of resource-dependent economies.

Assuming a benign scenario regarding the tapering of US monetary stimulus, the GEP’s baseline forecast is that the global economy will grow by 3.2 per cent in 2014, as compared with 2.4 per cent growth in 2013, on the basis of market exchange rates.

Using purchasing power party rates, which is the methodology used by the IMF and some other agencies, the World Bank’s predicted global growth rate for 2014 would be 3.7 per cent.

The World Bank’s full Global Economic Prospects report of January 2014 (160 pages), as well as summaries and press releases in various languages, are available on the Bank’s web site at: