The World Bank has released its Global Economic Outlook report, which has cut its global growth forecast to 2.8% for the year, from its 3.2% forecast in January.
According to the Bank, accelerated growth in the US and Europe will be more than offset by weakness in developing nations, whose growth forecast has been lowered to 4.8% this year from 5.3% in January.
The World Bank blames the lower growth forecast on:
Bad weather in the US, the crisis in Ukraine, rebalancing in China, political strife in several middle-income economies, slow progress on structural reform, and capacity constraints [which] are all contributing to a third straight year of sub 5 percent growth for the developing countries as a whole.
Nevertheless, the developed world’s economies are gaining strength, as the effects from austerity recede, labour markets improve, and pent-up demand starts to flow:
These economies are expected to grow by 1.9 percent in 2014, accelerating to 2.4 percent in 2015 and 2.5 percent in 2016. The Euro Area is on target to grow by 1.1 percent this year, while the United States economy, which contracted in the first quarter due to severe weather, is expected to grow by 2.1 percent this year (down from the previous forecast of 2.8 percent).
The World Bank also believes that the slow down will be temporary only, with global growth tipped to accelerate from next year, mostly on the back of higher income countries:
The global economy is expected to pick up speed as the year progresses and is projected to expand by 2.8 percent this year, strengthening to 3.4 and 3.5 percent in 2015 and 2016, respectively. High-income economies will contribute about half of global growth in 2015 and 2016, compared with less than 40 percent in 2013.
However, the Bank expects Chinese growth to continue to moderate:
Growth for China is expected to ease gradually from 7.6 percent in 2014 to 7.4 percent by 2016 reflecting continued rebalancing.
It is the last forecast that is obviously most pertinent to Australia, given our extreme reliance on China and iron ore.
