World Bank slashes growth forecast

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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:

 

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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.

Comments

  1. So, who’s going to prove correct on a Fed move (or not) the US economy bulls or the World Bank/IMF bears?

  2. Yes, this Global Depression has been going on for 6 years now…no surprise there.

    Japan, now a complete basket case, has a 10-year bond rate of 0.28%… yet people think that everything is fine…amazing.
    The rich people in Japan are doing fine.
    The poor, who only have $1,000,000 in superannuation, earn
    $54 per week on their 10-year bond.

  3. “The forces driving the global outlook and the associated risks pose complex policy challenges. Among high-income countries, especially in the Euro Area and Japan, monetary accommodation needs to be maintained and fiscal policy needs to be flexible to support growth in the short-term complemented with concrete medium-term consolidation plans. These policies should be supported by long-term structural reforms to boost productivity and, especially in the Euro Area, strengthen banking systems and reduce financial fragmentation.”

    If this is an indication of what is required of our government and they cannot manage the mild economic discomfort we are now experiencing, god help us when the it hits the fan…