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World Bank Cuts Global Economic Outlook

World Bank Cuts Global Economic Outlook
6/13/2013 2:14 AM ET

The World Bank lowered its growth forecasts for the global economy on Thursday, citing deeper-than-expected recession in the euro area and muted growth in developing countries.

Releasing the June edition of the Global Economic Prospects, the lender said it now expects the world economy to grow 2.2 percent this year, decelerating from the 2.3 percent expansion in 2012. The projection was weaker than the January forecast for a 2.4 percent expansion.

The growth is expected to strengthen to 3 percent in 2014 while the January report predicted growth of 3.1 percent. The outlook for 2015 was kept unchanged at 3.3 percent growth.

Economic contraction in the euro area is estimated to be 0.6 percent this year, compared with the previous projection of a 0.1 percent GDP decline. Economic activity is being held back by weak confidence and continued banking sector and fiscal restructuring, the report said.

The euro area economy is expected to improve gradually, with the gross domestic product rising 0.9 percent in 2014 and 1.5 percent in 2015.

Developing-country GDP is now projected to be around 5.1 percent in 2013, with the growth accelerating to 5.6 percent and 5.7 percent in 2014 and 2015, respectively, the bank said. The January report forecast 5.5 percent growth for 2013 and 5.7 percent growth for 2014. The World Bank also reduced its 2013 growth forecast for China to 7.7 percent from the January projection of a 8.4 percent expansion. The growth is expected to accelerate to about 8 percent each in 2014 and 2015 as global conditions improve.

India is projected to grow 5.7 percent in fiscal 2013, weaker than the 6.1 percent growth predicted earlier. The growth is forecast to improve to 6.5 percent and 6.7 percent in fiscal 2014 and 2015, respectively.

Though risks from advanced economies have receded, developing countries are facing new risks, including domestic challenges, according to the World Bank.

Among the risks are potential effects of the radical relaxation of both fiscal and monetary policy in Japan, a faster than expected decline in commodity prices, the risk of a withdrawal of quantitative easing in the US, and domestic challenges, such as inflationary pressures and asset price bubbles, and a weaker than pre-crisis growth rates.

Meanwhile, the US economy is forecast to grow 2 percent this year, slightly faster than the 1.9 percent expansion projected in January. The economy is expected to grow at faster pace of 2.8 percent in 2014 and 3 percent in 2015.

The lender upgraded its growth forecast for the Japanese economy to 1.4 percent this year as well as the next, from the January predictions of 0.8 percent and 1.2 percent respectively. The bank said that the recent relaxation of macroeconomic policy have sparked an uptick in activity in Japan, at least over the short-term.

by RTT Staff Writer

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