World Bank sees stronger growth as rich economies expand

WASHINGTON Wed Jan 15, 2014 6:44am EST

The World Bank chief economist Kaushik Basu speaks during a business conference in New Delhi August 19, 2013. REUTERS/Anindito Mukherjee

The World Bank chief economist Kaushik Basu speaks during a business conference in New Delhi August 19, 2013.

Credit: Reuters/Anindito Mukherjee

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WASHINGTON (Reuters) - The World Bank on Tuesday raised its forecast for global growth for the first time in three years as advanced economies started to pick up pace, led by the United States.

The rosier outlook suggests the world economy is finally breaking free from a long and sluggish recovery after the global financial crisis.

The poverty-fighting institution predicted global gross domestic product will expand 3.2 percent this year, from 2.4 percent in 2013, according to its twice-yearly "Global Economic Prospects." In the bank's last forecast in June, it expected global growth to reach 3 percent in 2014.

The bank said the global economy had come to a "turning point," as fiscal austerity and policy uncertainty no longer weighed as heavily on most richer economies. The bank expected stronger growth in the United States in particular, of 2.8 percent in 2014, from 1.8 percent last year.

"For the first time in five years, there are indications that a self-sustaining recovery has begun among high-income countries - suggesting that they may now join developing countries as a second engine of growth in the global economy," the bank's chief economist Kaushik Basu said in the report.

The bank again shaved its forecasts for developing countries, to 5.3 percent for 2014, from the 5.6 percent it predicted in June.

Emerging markets have grown at their slowest pace in a decade for the past two years, after chalking up growth rates of around 7.5 percent before the global financial crisis hit in 2008.

Andrew Burns, the report's lead author, said frothy growth before the crisis reflected cyclical factors.

"We're moving into a new phase where developing countries are growing at a rate much closer to their underlying sustainable rate of growth," he told reporters.

SMOOTH UNWINDING

As advanced economies strengthen, countries may begin pulling back from the massive monetary stimulus launched at the height of the crisis. The U.S. Federal Reserve has started winding down its monthly asset-purchase plan this month, though it expects to keep interest rates low for at least another year.

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.

The bank said that while risks to its global outlook, including a sharp rebalancing in China, a protracted recovery in the euro zone, and fiscal policy uncertainty in the United States, have not been eliminated, they have subsided.

(Reporting by Anna Yukhananov; Editing by Andrea Ricci)

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Comments (2)
justin2013 wrote:
Yeah, right. Let’s keep not counting the long-term unemployed and create a permanently stratified society. Things are looking up for the upper crust.

Jan 15, 2014 8:10am EST  --  Report as abuse
Rentz wrote:
What about the costs of economic growth?

Economic growth has served humanity fairly well in the past, however our economy has now grown to the point that it is stressing the earth’s ecosystems that our economy depends on. Climate change, extinction rates, the biodiversity crisis, over-fished fisheries, “dead zones” in the oceans, and over-pumped aquifers are a few examples. What was created over geologic time has been depleted by humans over the course of a few centuries.

At some point after basic needs are met, GDP does not represent increased happiness, but is actually a very good indicator of impact on the environment.

There is a fundamental conflict between economic growth and environmental protection, as well as national security. Resources are being converted from the economy of nature into the human economy at an unsustainable rate. Wastes are emitted back to the earth faster than they can be assimilated.

If economic growth remains the primary policy agenda for humans, I believe the inevitable transition to a sustainable steady state economy will be be characterized by chaos, violence, and misery, instead of the orderly process it could be with acceptance of the reality of what we face.

See http://steadystate.org for more on why the costs of economic growth now outweigh the benefits.

Jan 16, 2014 3:32pm EST  --  Report as abuse
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California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

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