Prospects for the global economy are brighter than for many years according to the World Bank, whose economists expect overall growth to increase from 2.4% last year to 3.2% in 2014, and to maintain that level for the next two years.
“The performance of advanced economies is gaining momentum, and this should support stronger growth in developing countries,” Jim Yong Kim, its president, said in a statement. The Bank’s report suggests that this momentum will be provided by a growing US, Europe’s emergence from recession and a revitalised Japan, the report said.
The generally optimistic tone was tempered by a repeat of the Bank’s warning that some lower-income economies could suffer reduced inflows of investment if interest rates rise, leading in turn to defaults and economic turbulence. However, the bank’s economists do not believe that the US Federal Reserve’s policy of ‘tapering’ its economic stimulus programme of recent years will significantly dent global growth.
“Whatever negative effect the taper might have, that’s going to be offset by the stronger growth in high-income countries,” Andrew Burns, the lead author of the report, said in an interview. “It’s not a doom-and-gloom scenario.”
The report forecasts that developing economies will grow by 5.3%, a relatively moderate pace set against the rate in the boom years that preceded the global recession of 2008-09. However, the Bank’s economists are convinced that slower growth offers greater stability, driven by improving economic fundamentals rather than cheap money and financial bubbles.
Emerging market giants China and India should see stronger growth this year, although concerns remain over India’s struggles with inflation and currency depreciation and China’s vulnerable banking sector and overinvestment. “It is important to avoid policy stasis so that the green shoots don’t turn into brown stubble,” said Kaushik Basu, the Bank’s chief economist.
The report also notes that after several turbulent years, the eurozone appears to have turned a corner, with policy and financial uncertainty in the region significantly easing. Ireland, Portugal and Spain have started growing again, and the pace of contraction seems to have slowed in Greece and Italy.
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