by Chris Becker
The World Bank has updated its global economic outlook by slashing global growth predictions from 3.7% to 3% for 2015 and very modest projections for 2016 and 2017:
The boffins consider the widening deflation threat in the Eurozone and the slump in emerging markets, namely Brazil and Russia, cannot be fully matched by the growing US economy, or even the dramatic fall in oil prices which they consider would only add about 0.1% to global GDP.
The markets giveth and they taketh away.
More from the WSJ:
The bank’s economists see oil prices, which have lost more than half their value in the last six months, providing uneven benefits to major oil importers.
The tumble in oil has bolstered the U.S. recovery by giving consumers more money to spend, leading the bank to revise up its growth projection for the world’s largest economy by 0.2 percentage point to 3.2%. But the price plunge is failing to spur stronger growth in importers such as Europe and Japan, while also exacerbating financial problems in major oil exporters.
Kaushik Basu, the World Bank’s chief economist, said the global economy is being pulled by a single engine—the U.S. economy.
“This does not make for a rosy outlook for the world,” he said. “It is really not enough.”
Indeed. As much as the mainstream continue to deride the Eurozones slowdown and size as insignificant, they fail to fully grasp the interconnectedness of the global economy. A recession in Europe will equate to a dramatic slowdown in China and further falls in growth in emerging countries as restructuring amid a higher USD is not happening fast enough. Its all about the debt of course as the path of the Fed raising rates any time soon is laid with significant obstacles to those markets.
But the bank said the overall weakness in the global economy is likely to prompt the U.S. Federal Reserve to delay an expected rate increase. Markets currently expect the Fed to act in the middle of the year.
Still, the bank warned that global growth prospects could dim further.
“Worryingly, the weak recovery in many high-income economies and slowdowns in several large emerging markets may be a symptom of deeper structural weaknesses,” said Mr. Basu, the bank’s chief economist, said.
This is a dour report, not one to be taken lightly.