World Bank Is Expecting Widespread (if Still Possibly Turbulent) Growth for 2014

By ANNIE LOWREYJAN. 14, 2014

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A Chinese steel mill. The World Bank predicts growth for China in spite of concerns with its banking sector and overinvestment. China Daily, via Reuters


WASHINGTON — After years of recession, financial crisis, fiscal wars and a patchwork recovery, there are relatively few dark clouds on the horizon for the global economy.

That is the conclusion of the World Bank’s latest global growth forecast, released on Tuesday. The bank’s economists expect growth over all to increase from 2.4 percent last year to 3.2 percent 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, the president of the World Bank, said in a statement.

Indeed, in the latest sign that even battered Europe is on the mend, Eurostat reported on Tuesday that factories in the euro zone ramped up output in November after two months of decline. Industrial production rose 1.8 percent from October, which itself was revised upward to show a smaller monthly drop.

Still, it is not necessarily all clear sailing ahead. The Federal Reserve’s slow retrenchment of its economic stimulus campaign — which served to push down interest rates the world over — poses one of the most significant risks for the global economy this year, the bank said.

Some lower-income economies may suffer from reduced inflows of investment if interest rates rise, the bank warned, as it has for months.

That could lead to defaults and economic turbulence. Even so, the bank’s economists do not see the Fed’s so-called tapering as pushing global growth off its path.

“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.”

He noted that markets responded calmly when the Fed announced its decision late last year to begin cutting its asset purchases, by an increment of $10 billion, from $85 billion a month.

The bank expects that developing economies will grow in 2014 by what would be a relatively moderate pace for them of 5.3 percent. That would be significantly slower than in the boom years that preceded the global recession. But the bank’s economists said they believed that slower growth might be healthier and more stable, driven by improving economic fundamentals rather than cheap money and financial bubbles.

The emerging-market giants China and India should see stronger growth this year, the bank said. But concerns remain: India has struggled with inflation and currency depreciation, and China with a vulnerable banking sector and over investment. “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.

This year, global momentum should benefit from a growing United States, a bottomed-out Europe and a revitalized Japan, the report said.

The beleaguered euro area seems to have turned a corner, the report said, and policy and financial uncertainty in the region has significantly eased. Ireland, Portugal and Spain have started growing again, and the pace of contraction seems to have slowed in Greece and Italy.

The monthly Eurostat report showed that Ireland, which has just exited its bailout program, led all European Union nations, with a sharp 11.7 percent gain in industrial production in November, bouncing back from a 6.3 decline in the previous month. Germany, the largest European economy, reported a rise of 2.4 percent, while France managed a gain of 1.4 percent.

The entire European Union, which includes 11 countries beyond the 17 nations that shared the euro last year, reported a 1.5 percent increase in industrial output in November, putting it 3 percent ahead of the same month a year earlier.

In the United States, federal budget cuts should have a smaller effect on growth in the future, the bank said. And uncertainty stemming from Washington, capped last fall when the federal government shut down over a budget impasse, should pose less of a problem, too.

The bank expects growth in the United States of about 2.8 percent in 2014, up from 1.8 percent last year.

And even Japan has been jolted out of its long slump by aggressive monetary and fiscal stimulus in Japan — often called “Abenomics,” after Prime Minister Shinzo Abe — that is helping bring more balance to the global economy.

“The high-income countries are growing,” Mr. Burns said. “For the first time in five years, we have two engines at the head of the train of global growth.”

http://www.nytimes.com/2014/01/15/bu...=business&_r=0