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Global Economy to Expand by 3 Per Cent
Jan 18, 2015

World Bank Group’s Global Economic Prospects (GEP) report says, “Following another disappointing year in 2014, developing countries should see an uptick in growth this year, boosted in part by soft oil prices, a stronger U.S. economy, continued low global interest rates, and receding domestic headwinds in several large emerging markets.”

Salient Features of the Report

  • After growing by an estimated 2.6 percent in 2014, the global economy is projected to expand by 3 percent this year, 3.3 percent in 2016 and 3.2 percent in 2017.

  • Developing countries grew by 4.4 percent in 2014 and are expected to edge up to 4.8 percent in 2015, strengthening to 5.3 and 5.4 percent in 2016 and 2017, respectively.

  • In this uncertain economic environment, developing countries need to judiciously deploy their resources to support social programmes with a laser-like focus on the poor and undertake structural reforms that invest in people.

  • Underneath the fragile global recovery lie increasingly divergent trends with significant implications for global growth. Activity in the United States and the United Kingdom is gathering momentum as labour markets heal and monetary policy remains extremely accommodative.

  • But the recovery has been sputtering in the Euro zone and Japan as legacies of the financial crisis linger.

  • China is undergoing a carefully managed slowdown with growth slowing to a still-robust 7.1 percent this year (7.4 percent in 2014), 7 percent in 2016 and 6.9 percent in 2017.

  • Growth in the United States is expected to accelerate to 3.2 percent this year (from 2.4 percent last year), before moderating to 3 and 2.4 percent in 2016 and 2017, respectively.

  • In the Euro zone, uncomfortably low inflation could prove to be protracted. The forecast for Euro zone growth is a sluggish 1.1 percent in 2015 (0.8 percent in 2014), rising to 1.6 percent in 2016-17.

  • In Japan, growth will rise to 1.2 percent in 2015 (0.2 percent in 2014) and 1.6 percent in 2016.

  • Commodity prices are projected to stay soft in 2015.


Risks to the outlook remain tilted to the downside, due to four factors:

  1. Persistently weak global trade.

  2. The possibility of financial market volatility as interest rates in major economies rise on varying timelines.

  3. The extent to which low oil prices strain balance sheets in oil-producing countries.

  4. The risk of a prolonged period of stagnation or deflation in the Euro zone or Japan.

Trade flows are likely to remain weak in 2015. Since the global financial crisis, global trade has slowed significantly, growing by less than 4 percent in 2013 and 2014, well below the pre-crisis average growth of 7 percent per annum. The slowdown is partly due to weak demand and to what appears to be lower sensitivity of world trade to changes in global activity. Changes in global value chains and a shifting composition of import demand may have contributed to the decline in responsiveness of trade to growth.

 


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