By Lesley Wroughton
WASHINGTON Jan 15 A frustratingly slow economic
recovery in developed nations is holding back the global
economy, the World Bank said on Tuesday, as it sharply cut its
outlook for world growth in 2013.
The World Bank forecast that global gross domestic product
will inch up 2.4 percent this year, from 2.3 percent in 2012. In
its last forecast in June, the bank projected global growth
would reach 3.0 percent in 2013.
Andrew Burns, lead author of the bank's Global Economic
Prospects report, said that a recovery the bank had anticipated
last year was now expected "closer to the end of the first
quarter and into the second quarter of 2013, rather than
beginning a little earlier."
The Bank warned that a drawn-out political battle in the
United States over raising the government's borrowing limit and
spending cuts could hit growth, spark a loss of confidence in
the U.S. dollar and unnerve financial markets.
The World Bank also cut its forecast for developing
countries, which last year grew at their slowest pace in a
decade, to 5.5 percent in 2013 from 5.9 percent in the June
forecast. It said growth in these countries should slowly pick
up, reaching 5.7 percent next year and 5.8 percent in 2015.
Before the global financial crisis hit in 2007, developing
countries as a whole were chalking up growth rates of around 7.5
percent, with China growing at an annual rate of 10 percent.
The World Bank forecast that Chinese growth would reach 8.4
percent this year, slowing to 7.9 percent by 2015.
In comparison, growth in advanced economies should reach a
very weak 1.3 percent this year, weighed down by spending cuts,
high unemployment and weak consumer and business confidence, the
World Bank said. Activity should strengthen next year to 2
percent and 2.3 percent in 2015.
While financial markets were buoyed by measures adopted last
year to address the euro-zone debt crisis, the World Bank urged
Washington to outline a credible medium-term fiscal plan that
"avoids episodes of brinkmanship" over raising the country's
self-imposed debt ceiling.
The White House and the U.S. Congress did agree at the
beginning of January to extend tax cuts for American families
earning less than $450,000 a year as part of a deal over the
so-called fiscal cliff. But lawmakers must still navigate the
debt limit as well as thrash out a deal over drastic automatic
sending cuts that were postponed until March 1.
"Policy uncertainty (in the United States) has already
dampened growth," the World Bank said. "Should policymakers fail
to agree such measures, a loss of confidence in the currency and
an overall increase in market tensions could reduce U.S. and
global growth by 2.3 and 1.4 percent respectively."
Burns urged developing countries to "maintain a steady hand
on monetary policy" and not to react too forcefully to changes
in developed countries. He said developing nations should focus
on structural polices and investments to support sustained
The Bank said most developing countries were operating at or
near "full capacity" and additional efforts to boost output risk
hitting inflation speed bumps.
Meanwhile, the World Bank said a decline in China's
unusually high investment rate was not likely to affect global
growth over the medium to long term, but warned that a sharp
decline could have domestic and global consequences.
World Bank economic simulations suggest that a 10 percentage
point deceleration in Chinese investment would cause Chinese GDP
growth to slow by about 3 percentage points.
The Bank said a bitter territorial row between China and
Japan over islands in the East China Sea has had an impact on
Japanese exports to China.