Global economy to grow this year – World Bank

Filomena Scalise

Filomena Scalise

Published Jan 15, 2014

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The World Bank released an optimistic report yesterday, which projects that the global economy will strengthen this year, with growth picking up in developing markets while high-income countries appear to be finally turning the corner five years after the global financial crisis.

The multilateral lender’s Global Economic Prospects 2014 report says that after several years of extreme weakness, high-income economies are forecast to help accelerate global growth from 2.4 percent last year to 3.2 percent this year, 3.4 percent next year, and 3.5 percent in 2016.

It says sub-Saharan Africa’s economic growth also picked up last year, supported by strong demand. Real gross domestic product (GDP) growth strengthened to 4.7 percent in the region, even though industrial output in South Africa shrank at an 8 percent annualised rate in the third quarter, partly reflecting the impact of labour strikes.

The report forecasts South Africa’s growth will rise from 2.5 percent in 2012 and 1.9 percent last year to 2.7 percent this year and 3.4 percent in 2015.

In his medium-term budget policy statement in October last year, Finance Minister Pravin Gordhan forecast growth of about 2.1 percent in the South African economy last year, rising to 3.5 percent by 2016.

The twice-yearly report says the strengthening of output among high-income countries marks a significant shift from recent years when developing countries alone pulled the the global economy forward.

It says in that addition to providing a second basis for global expansion, stronger growth and import demand in high-income countries will provide support for exports from developing countries. This should help compensate for the inevitable tightening of financial conditions that will arise as monetary policy in the developed world returns to normal.

The report says activity and sentiment in developing countries has turned up since the middle of last year, bolstered by strengthening demand in the developed world and a policy-induced rebound in China.

“These positive developments were partly offset by tighter financial conditions and reduced capital flows as long-term interest rates in the US ticked up in response to expectations of the gradual withdrawal of quantitative easing. Other major headwinds included declining commodity prices for commodity exporters,” the report says.

Overall, growth in developing countries is projected to pick up modestly from 4.8 percent last year to 5.3 percent this year, 5.5 percent next year and 5.7 percent in 2016.

“Developing-country GDP growth will be about 2.2 percentage points weaker than it was during the pre-crisis boom period.

The slower growth is no cause for concern, however. More than two-thirds of the slowdown reflects a decline in the cyclical component of growth and less than one-third is due to slower potential growth,” the report says.

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