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World Bank lowers global forecast; US and UK to lead growth

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14 January 2015

World Bank has lowered its world-wide growth forecast for 2015 and 2016, citing disappointing economic prospects in the euro zone and Japan as well as some major emerging economies which it says will offset the benefit of lower oil prices.

In its twice-yearly Global Economic Prospects report, the WB predicted that the world's economy would grow 3 per cent this year, below an earlier forecast of 3.4 per cent made in June.

World GDP growth will reach 3.3 per cent in 2016, against its June forecast of 3.5 per cent, before dipping to 3.2 per cent in 2017.

"The global economy is at a disconcerting juncture," World Bank chief economist Kaushik Basu told reporters in a conference call from Washington. "It is as challenging a moment as it gets for economic forecasting."

The world economy has been more sluggish than expected since the 2007-2009 global financial crisis, the report suggests.

'Single-engine economy
Strong growth prospects in the United States and Britain separated them from other rich nations, including members of the euro zone and Japan, which continue to face weak economies and deflation fears.

"The global economy is running on a single engine, the American one," Basu said. "This does not make for a rosy outlook for the world."

Among emerging markets, Brazil and Russia in particular weighed on the bank's global growth predictions, along with China, which is in a managed slowdown as it transitions away from an investment-led growth model.

Like other forecasters, the World Bank predicted the roughly 60 per cent drop in global oil prices since June of last year should be a net positive for the world economy, boosting oil-importing countries.

But while the World Bank expected oil prices to stay low this year, it said the positive price shock could take several years to feed into its growth outlook, while increasing short-term market volatility and reducing investments in unconventional oil such as shale and deep sea oil.

The immediate impact of lower crude prices was limited to a 0.1 per cent point boost to the global outlook this year, the Bank said.

Falling oil prices could also depress inflation around the world. Fears of deflation, along with overall gloomier global prospects and stagnant US wages, could encourage the US Federal Reserve to raise interest rates more slowly than anticipated.





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