World Bank slashes growth forecasts

16 Jan 13
The World Bank has cut its growth forecasts for both high-income countries and the developing world but still expects ‘modest acceleration’ over the next three years.

By Nick Mann | 16 January 2013

The World Bank has cut its growth forecasts for both high-income countries and the developing world but still expects ‘modest acceleration’ over the next three years.

In its latest Global economic prospects report, published last night, the Bank said it now believes the world economy grew by 2.3% last year – and not the 2.5% it forecast in June. It predicts growth of 2.4% for 2013, down from 3% in its June forecast, and 3.1% next year, compared with the 3.3% it expected in June.

On high-income countries, the Bank highlights an ‘unusual weakness’ in US investment and industrial activity, which it attributes to uncertainty over the country’s fiscal policy. Meanwhile, Japan’s economy appears to be contracting, while Europe’s seems to have weakened in the last quarter of 2012.

As a result, the Bank now expects high-income economies to grow by 1.3% this year – and not the 1.9% it forecast in June. It has also downgraded its forecast for next year from 2.3% to 2%.

It notes, however, that risks to the global economic outlook have diminished in recent months, with financial market conditions improving ‘dramatically’ since June.

Developing countries were responsible for more than half of global growth last year. They have proved largely resilient to the weaknesses of the richer countries, thanks to strong domestic demand and growing trade links in the southern hemisphere. However, the Bank has lowered its growth forecasts for these countries too. The developing world economy is now expected to grow by 5.5% this year and 5.7% in 2014, compared with 5.9% and 6% respectively forecast in June.

World Bank president Jim Yong Kim said: ‘Developing countries have remained remarkably resilient thus far. But we can't wait for a return to growth in the high-income countries, so we have to continue to support developing countries in making investments in infrastructure, in health, in education. This will set the stage for the stronger growth that we know they can achieve in the future.’

Andrew Burns, the author of the report, added: ‘To assure resilience to downside risks, developing countries need to gradually rebuild depleted fiscal and monetary buffers, and improve social safety nets and food security.’

Did you enjoy this article?

Related articles

Have your say

Newsletter

CIPFA latest

Most popular

Most commented

Events & webinars