> The World Bank has cut its forecast for global growth,

World: The World Bank has cut its forecast for global growth,

2015/01/16

The World Bank has cut its estimate for world increase, warning that the world economy remained overly reliant on the “single engine” of the US recovery.
The Bank said it expected lower oil prices to provide a boost to world activity. But it warned several headwinds would mitigate the result of the falling cost of crude. These include weak confidence part consumers and businesses and the inability of large central banks to cut interest rates below their record-low levels to boost inflation expectations.

“The world economy is running on a single engine,” said Kaushik Basu, chief economist at the World Bank. “It is only the US economy that is forging ahead in a world economy with so much uncertainty. We need several engines,” he added.

In its twice-yearly World Economic Prospects, the World Bank forecasts the world economy will expand by 3 % this year and by 3.3 % in 2016. In June the Bank’s economists had predicted world increase this year and next to be 3.4 % and 3.5 % respectively.
The Bank lifted its forecasts for increase in the US this year from 3 % to 3.2 %, while slashing those for the eurozone from 1.8 % to 1.1 %. The UK is expected to grow by 2.9 % in 2015.

Middle-gain nations were hit by a raft of downgrades, with Russia presently expected to arrangement by 2.9 % instead of growing by 1.5 %. South Asia provided a rare bright spot, with forecasts for 2015 lifted by 0.2 % points to 6.1 %.
The Washington-based institution said it expected the 60 % drop in the cost of crude since June to lift increase by around 0.5 % over the medium run. But the Bank struck a downbeat tone on the prospects for the world economy. “Risks to this slow-moving world recovery are significant and tilted to the downside,” the statement said.

The majority significant threat to the recovery listed by the Bank is the normalisation of monetary policy in the US. Last week, minutes from the December conference of the Federal Open Market Committee showed the US Federal Reserve could raise interest rates from 0-0.25 % as any minute at this time as April. The Bank fears this could lead to a sudden tightening of financial conditions for governments and corporates in emerging markets, which have enjoyed low borrowing costs.

However, the Bank does not expect a repeat of the turmoil that hit developing nations in the summer of 2013, at the same time as the Fed initial revealed it may pull back from its programme of quantitative easing. “The adjustment in developing nations to financial tightening is expected to proceed additional smoothly,” the statement said.

Mr Basu said he did not think monetary tightening in the US would force central banks in emerging markets into sudden interest rates hikes. “Central banks in emerging markets will have to react but the reaction will not have to be any additional muscular than one-and-a-half year ago,” he explained.

Last October, the International Monetary Fund lowered its forecasts for world increase, saying the world economy would expand by 3.3 % in 2015 instead of 3.4 %. The IMF’s new batch of economic forecasts will be released next week in an update to its twice-yearly World Economic Outlook.
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