The Economy

Risks to Outlook ‘Tilted to the Downside’: World Bank

Once again, the World Bank chops some basis points off global economic growth projections, describing the euro zone and Japan as "sputtering."
Katie Kuehner-HebertJanuary 14, 2015
Risks to Outlook ‘Tilted to the Downside’: World Bank

The World Bank trimmed its global economic growth forecast to 3% in 2015 and 3.3% in 2016, down from earlier projections of 3.4% and 3.5%, respectively.

While the global economy should continue to expand over the next several years, several “divergent trends” could limit growth, according to the World Bank Group’s Global Economic Prospects report, released Tuesday.

U.S. growth was revised upward, to 3.2% in 2015, as was developing country growth, but they were not enough to lift global projections.

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“Activity in the United States and the United Kingdom is gathering momentum as labor markets heal and monetary policy remains extremely accommodative,” the report said, “but the recovery has been sputtering in the euro area and Japan as legacies of the financial crisis linger.”

China, in what the World Bank called a “carefully managed slowdown,” will see growth fall to 7.1% in 2015 and 7% in 2016, from 7.4% last year.

But developing countries as a whole, which grew by 4.4% in 2014, are expected to edge up to 4.8% in 2015, strengthening to 5.3% and 5.4% in 2016 and 2017, respectively.

Economies in developing countries should benefit from soft oil prices, a stronger U.S. economy, continued low global interest rates and “receding domestic headwinds” in a number of large emerging markets, the World Bank said.

“In this uncertain economic environment, developing countries need to judiciously deploy their resources to support social programs with a laser-like focus on the poor and undertake structural reforms that invest in people,” World Bank Group President Jim Yong Kim said in a press release. “It’s also critical for countries to remove any unnecessary roadblocks for private sector investment.”

The World Bank said risks to its forecasts remain “tilted to the downside.”

Four factors that could impede growth are “persistently weak” global trade; possible financial market volatility as interest rates in major economies rise on varying timelines; the extent to which low oil prices strain balance sheets in oil-producing countries; and the risk of a prolonged period of stagnation or deflation in the euro zone or Japan.