World Bank Says ‘New Normal’ Means Lower Global Growth
The World Bank has trimmed its forecasts for global economic growth this year, which it downgraded to 2.2% against its expectation last January for a figure of 2.4%. The latter projection was, itself, a downgrade from an earlier forecast for 2013 of 3%. It said that countries were entering a period of a ‘new normal’ of slower growth rates in emerging countries and moderating commodity prices.
The bank now expects the global economy to grow slightly below last year’s 2.3%, rather than slightly above. In 2014 the growth rate is expected to pick up to 3% (previously 3.1%) and reach 3.3% in 2015 (unchanged).
“Growth is not slower because of inadequate demand but rather because, in our view, the very strong growth we saw in the pre-crisis period was due to that bubble phenomenon,” said the lead author of the report, Andrew Burns.
Countries such as the so-called ‘BRIC’ quartet of Brazil, Russia, India and China will grow at their slowest pace in a decade, at 5.1%, as commodity prices moderate and countries rebalance their economies the World Bank said – although its 2013 forecast for Russia’s gross domestic product (GDP) growth has been sharply reduced, from 3.6% previously to 2.3%.
Growth in these countries should begin to strengthen, to 5.6% next year and 5.7% in 2015, according to the report. However, the bank believes that the major developing economies, which have driven global growth in recent years, will not experience the same boom as they did before the global financial crisis and will need to focus on structural reforms to keep expanding.
“What we’re seeing now is more in line with the underlying growth potential,” said Burns. “Therefore, this is a case of moving towards the new normal of the post-crisis.”
China’s economy, which regularly achieved annual growth rates of 10% before the crisis, is now expected to grow 7.7% in 2013 against the bank’s earlier projection of 8.4% . Burns suggested that China’s rapid expansion would moderate as its economy rebalanced away from investment-led growth to focus more on consumption.
The World Bank warns developing nations to be vigilant for the side effects from the massive monetary expansion in advanced nations such as the US and Japan. Other major risks to the global economy cited are continuing recession in the eurozone and fiscal uncertainty in the US.