By Judith Ugwumadu | 15 January 2014
The world economy is showing signs of bouncing back and is expected to expand by 3.2% this year, the World Bank said in its global growth forecast for 2014.
Global economic prospects said higher-income economies were ‘turning the corner’ five years after the global financial crisis. Partly due to this recovery, developing countries are also seeing ‘firming growth’ and strong growth continued in China.
However, the bank warned that growth prospects ‘remained vulnerable to headwinds’ from rising global interest rates and potential volatility in capital flows, as the US Federal Reserve Bank begins tapering its massive monetary stimulus.
World Bank president Jim Yong Kim said: ‘Growth appears to be strengthening in both high-income and developing countries, but downside risks continue to threaten the global economic recovery. The performance of advanced economies is gaining momentum, and this should support stronger growth in developing countries in the months ahead. Still, to accelerate poverty reduction, developing nations will need to adopt structural reforms that promote job creation, strengthen financial systems, and shore up social safety nets.’
The bank forecasts global gross domestic product to grow from 2.4% in 2013 to 3.2% this year. It said this could stabilise at 3.4% and 3.5% in 2015 and 2016 respectively, with much of the initial acceleration reflecting stronger growth in richer countries.
Growth in developing countries will pick up from 4.8% in 2013 to a slower-than-previously expected 5.3% this year, the bank said. It went on to forecast growth of 5.5% in 2015 and 5.7% in 2016.
The bank added that higher-income countries could see a drag on growth from fiscal consolidation and policy uncertainty to ease, helping to boost economic growth from 1.3% last year to 2.2% in 2014, stabilising at 2.4% in both 2015 and 2016.
According to the bank, the recovery is most advanced in the US, with GDP expanding for ten consecutive quarters and projected to grow by 2.8% this year. Growth in the euro area is projected to be 1.1% this year, 1.4% and 1.5% in 2015 and 2016 respectively, after two years of contraction.
Kaushik Basu, senior vice president and chief economist at the bank, said: ‘Global economic indicators show improvement. But one does not have to be especially astute to see there are dangers that lurk beneath the surface.
‘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 5% in 2014, with some countries doing considerably better, with Angola at 8%, China 7.7%, and India at 6.2%.’
He warned that it was important to avoid policy stasis so that ‘green shoots don’t turn into brown stubble’.
