World Bank sees 'flat' growth for developing countries

Posted at 06/11/2014 10:35 AM | Updated as of 06/11/2014 10:35 AM

WASHINGTON - The World Bank lowered its 2014 growth forecasts for the global economy Tuesday, but said advanced economies' rebound from a rough start would help offset stagnation in developing countries.

Most of the pick-up in growth this year will come from high-income countries, particularly the United States and the 18-nation eurozone, the World Bank said in its twice-yearly Global Economic Prospects report.

But a rough start to the year -- bad weather in the United States, financial market turmoil and the Ukraine crisis -- dragged down global growth for the year as a whole, the Bank said.

It marked down its 2014 forecast to a 2.8 percent pace from its January forecast of 3.2 percent. The global economy grew 2.4 percent growth in 2013.

High-income countries would see stronger growth this year of 1.9 percent from 1.3 percent in the previous year, the World Bank said.

But developing countries can expect mixed challenges from the accelerating growth in the rich countries.

As high-income economies expand, their import demand should grow, boosting developing-country exports.

But developing countries will be hard-pressed to find the capacity to meet that demand, because most of them already are fully recovered from the 2008 financial crisis and growing close to potential, the Washington-based development lender said.

Developing countries were projected to grow 4.8 percent this year, substantially below the 5.3 percent estimate in January.

"The outlook for developing countries is for flat growth in 2014. This marks the third year in a row of sub-five percent growth and reflects a more challenging post-crisis global economic environment," it said.

The World Bank's latest outlook marked a deterioration from the January report, when it had raised its growth forecasts, saying both rich and developing countries appeared to be "finally turning the corner" after the global financial crisis.

Weakness in China

Much of the slowdown this year reflected weakness in China, the world's second-largest economy.

First-quarter growth in Chinese gross domestic product was only a 5.8 percent annualized rate, with a sharp deceleration in industrial output and Beijing taking steps to tighten credit.

The Washington-based lender forecast growth of 7.6 percent this year, lower than China's 7.7-percent growth rate in 2013. Beijing's own target for this year is 7.5 percent.

GDP growth accelerated slightly in the first quarter in India, Mexico and the Philippines. But the pace of growth slowed in Indonesia, Mongolia, Malaysia and Brazil and turned negative in South Africa and Peru.

Sharp annualized contractions of between eight and 12 percent occurred in Ukraine, Thailand and Morocco.

The weakness in developing countries reflected a slew of factors, including knock-on effects from the severe winter in the US; political tensions in Thailand, Ukraine and Turkey; labor unrest in South Africa; and monetary policy tightening following financial market turmoil a year ago, the Bank said.

Actual and structural fiscal deficits are much higher now than in 2007 in developing countries, and debt rose by more than 10 percentage points of GDP in half of them.

The World Bank warned that developing countries need to prepare now with structural reforms while financial conditions are easy, because they are likely to tighten over the longer term.

The president of the World Bank, Jim Yong Kim, said more robust growth was needed to create the type of jobs that can improve the lives of the world's poorest 40 percent.

"Clearly, countries need to move faster and invest more in domestic structural reforms to get broad-based economic growth to levels needed to end extreme poverty in our generation," Kim said in a statement.

Andrew Burns, lead author of the report, said bottlenecks in energy and infrastructure, labor markets and business climate in many of the large middle-income countries are holding back economic and productivity growth."

"Subsidy reform is one potential avenue for generating the money to raise the quality of public investments in human capital and physical infrastructure," he said.

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