World Bank Lowers Global Growth Forecast As Economy Enters “New Normal”

By: EW News Desk Team   Date: 13 June 2013

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13 June 2013

The World Bank on Wednesday lowered its growth estimate for the global economy in 2013, in part due to the spiralling eurozone crisis, but said that outlook appears more stable than just before the 2008 financial crisis.

According to the World Bank’s latest report, the global economy will grow by 2.2 percent this year, bolstered by a 5.1 percent surge in developing countries.

Though slightly weaker than an earlier forecast of 2.4 percent growth in January, World Bank chief economist Kaushik Basu said the estimates are “actually similar to what we were saying about six months ago”, adding that “in a turbulent global economy, that is good news when you have two periods without any big shifts and changes.”

But the bank said growth remains subdued in high-income countries, particularly in Europe, where growth is being held back by weak confidence and continued banking sector and fiscal restructuring.

Overall, the Washington-based organisation said that risks to the global economy appeared to be diminishing and was more stable than in the build-up to the 2008 financial crisis, where robust growth was due to financial bubbles.

"We are moving towards a less volatile period where growth is going to be slower but less subject to strong fluctuations, especially those coming from the high-income world that we've observed in the previous years," Andrew Burns, co-author of the report, said.

"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," Burns told reporters.

He added:

What we're seeing now is more in line with the underlying growth potential. Therefore, this is a case of moving towards the new normal of the post crisis.

Part of that "new normal" will include slower growth rates in countries like Brazil, Russia, India and China, as commodities prices moderate and countries rebalance their economies, the World Bank said.

Related: Global Rebalancing for Sustainable Growth: Michael Pettis

Related: Asian Emerging Markets Vulnerable to Shock: ADB

In a separate interview with the Wall Street Journal on Tuesday, World Bank President Jim Yong Kim said the bank is concerned about the economic impact when central banks around the world start to rein in their accommodative monetary policy which includes near-zero interest rates and bond-buying programmes aimed at keeping long-term borrowing costs low.

"One of the concerns is what's going to happen if there's a sudden stop to the loose monetary policy (and) what's going to happen to access to capital (for) developing countries," Kim said.

Related: US Federal Reserve Increasingly Divided Over QE3

Related: IMF Backs Japan’s $1.4tn Monetary Policy Boost

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