Business World

Tuesday 12 December 2017

World Bank lifts forecasts for richest states

Kaushik Basu says global economic indicators are showing improvement
Kaushik Basu says global economic indicators are showing improvement
Colm Kelpie

Colm Kelpie

THE global economy is showing signs of bouncing back this year, with advanced economies "turning the corner", the World Bank's latest health check has concluded.

It forecast stronger growth for the first time in three years, with global GDP rising 3.2pc, in 2014, up from 2.4pc in 2013, stabilising at 3.4pc and 3.5pc in 2015 and 2016 respectively.

But it warned that growth prospects are sensitive to the withdrawal of economic stimulus measures in the United States, which began earlier this month, and to structural shifts taking place in China's economy.

The Washington-based global body said that as the US Federal Reserve scales back its radical measures it could push up interest rates and have a knock-on effect on developing economies.

The US Federal Reserve has already begun to wind down its monthly bond-buying programme, previously set at $85bn a month.

The World Bank's latest Global Economic Prospects report makes no mention of Ireland.

Kaushik Basu, Senior Vice President and Chief Economist at the World Bank, said global economic indicators are showing improvement.

"But one does not have to be especially astute to see there are dangers that lurk beneath the surface," he said.

"The Euro Area is out of recession but per capita incomes are still declining in several countries.

"We expect developing country growth to rise above 5pc in 2014, with some countries doing considerably better, with Angola at 8pc, China 7.7pc, and India at 6.2pc. But it is important to avoid policy stasis so that the green shoots don't turn into brown stubble."

The Bank, whose self-proclaimed aims include fighting poverty, said that for higher-income economies the drag caused by austerity measures and policy uncertainty would continue to ease, accelerating economic growth from 1.3pc in 2013 to 2.2pc this year, stabilising at 2.4pc for each of 2015 and 2016.

It said recovery was most advanced in the US, with GDP now expanding for 10 quarters.


The US economy is projected to grow by 2.8pc this year, from 1.8pc in 2013, firming to 2.9 and 3pc in 2015 and 2016, respectively.

Growth in the Euro Area, after two years of contraction, is projected to be 1.1pc this year, and 1.4 and 1.5pc in 2015 and 2016, respectively.

As advanced economies strengthen, countries may begin pulling back from the massive monetary stimulus launched at the height of the crisis.

The World Bank said it expects rates around the world to inch up gradually, causing minimal disruptions for developing countries as capital inflows slow down.

"Whatever drag this implies for developing country growth is more than offset by the additional export demand due to stronger high-income country growth," the report said.

However, if rates jump suddenly, countries with high debt levels or large current account deficits such as Thailand and Malaysia would be most vulnerable.

Irish Independent

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