The global economy is slowly picking up steam, led by advanced nations appearing to turn the corner after five years of financial crises, recession and a continued good performance by China, the World Bank has said.
But it warns that growth prospects remain vulnerable to rising interest rates and potential volatility in capital flows as the US Federal Reserve eases up on the extraordinary stimulus it has been providing to America’s economy, the world’s largest.
The bank’s twice-yearly Global Economics Prospects report says world growth is expected to firm from 2.4% in 2013 to 3.2% this year and 3.4% in 2015. The report said the momentum built up by countries such as the United States and Japan should support stronger growth in the developing countries.
Presenting the findings, Kaushik Basu, the bank’s chief economist, said at the bank’s Washington headquarters: “It’s a strange world we live in that news that an uneventful economy ahead of us is meant to be good news.
“But not surprising,” he added, that this was the case after years of economic turmoil. The report says that although risks to the global economy have subsided, they have not been eliminated and include fiscal uncertainty in the United States, protracted recovery in the eurozone and possible setbacks in China’s restructuring policies.
The bank said the Federal Reserve decision to begin trimming its intervention in the market, known as quantitative easing, “is welcome as it reflects increasingly convincing signs that a self-sustaining recovery is under way”. It said the most likely scenario is for the tapering off to follow an orderly course and for global interest rates to rise only slowly, reaching 3.6% by mid-2016.
In Japan, the report says, large doses of fiscal and monetary stimulus have sparked a strong cyclical upturn but keeping this going will require structural reforms.
In the eurozone, banks have gone a long way to restructuring themselves but that sector remains weak. Details on a fully fledged banking union are still being worked out “and the currency bloc remains susceptible to shock”, the report says. Although developing country growth in 2013 was relatively weak, at an estimated 4.8%, “it has been firming in recent months, partly reflecting strengthening growth in high-income countries, but also a recovery from earlier weakness in large middle-income countries, such as India and China”.
Looking at trends, the bank says growth will be flat in east Asia and the Pacific, modest in Latin America and the Caribbean and held back in the Middle East and North Africa.