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World Bank Lowers Projections for Global Economic Outlook

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World Bank Lowers Projections for Global Economic Outlook

Urges Developing Countries to Double Down On Domestic Reforms.

According to the World Bank, developing countries are headed for a year of disappointing growth, as first quarter weakness in 2014 has delayed an expected pick-up in economic activity.

Bad weather in the US, the crisis in Ukraine, rebalancing in China, political strife in several middle-income economies, slow progress on structural reform, and capacity constraints are all contributing to a third straight year of sub 5% growth for the developing countries as a whole.

“Growth rates in the developing world remain far too modest to create the kind of jobs we need to improve the lives of the poorest 40 percent,” said World Bank Group President Jim Yong Kim. “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.”

"In brief, now is the time to prepare for the next crisis.”

The Bank has lowered its forecasts for developing countries, now eyeing growth at 4.8% this year, down from its January estimate of 5.3%. Signs point to strengthening in 2015 and 2016 to 5.4 and 5.5%, respectively. China is expected to grow by 7.6% this year, but this will depend on the success of rebalancing efforts. If a hard landing occurs, the reverberations across Asia would be widely felt.

Despite first quarter weakness in the United States, the recovery in high-income countries is gaining momentum. These economies are expected to grow by 1.9% in 2014, accelerating to 2.4% in 2015 and 2.5% in 2016. The Euro Area is on target to grow by 1.1% this year, while the United States economy, which contracted in the first quarter due to severe weather, is expected to grow by 2.1% this year (down from the previous forecast of 2.8%).

The global economy is expected to pick up speed as the year progresses and is projected to expand by 2.8% this year, strengthening to 3.4 and 3.5% in 2015 and 2016, respectively. High-income economies will contribute about half of global growth in 2015 and 2016, compared with less than 40% in 2013.

Markets remain skittish and speculation over the timing and magnitude of future shifts in high-income macro policy may result in further episodes of volatility. Also, vulnerabilities persist in several countries that combine high inflation and current account deficits (Brazil, South Africa and Turkey). The risk here is that the recent easing of international financial conditions will once again serve to boost credit growth, current account deficits and associated vulnerabilities.

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“The financial health of economies has improved. With the exception of China and Russia, stock markets have done well in emerging economies, notably, India and Indonesia. But we are not totally out of the woods yet. A gradual tightening of fiscal policy and structural reforms are desirable to restore fiscal space depleted by the 2008 financial crisis. In brief, now is the time to prepare for the next crisis,” said Kaushik Basu, Senior Vice President and Chief Economist at the World Bank.

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