FXstreet.com (Barcelona) - A frustratingly slow economic
recovery in developed nations has seemingly conspired to hold back
the overall global economy, noted World Bank said on Tuesday, as it
sharply cut its outlook for world growth in 2013. The World Bank
now forecasts that global gross domestic product will inch up a
meager +2.4% this year, from +2.3% in 2012. In its last forecast in
June, the bank projected global growth would reach +3.0% in 2013,
which obviously comes as a disappointment.
According to Andrew Burns, lead author of the bank's Global
Economic Prospects report, "the recovery that the bank had
anticipated last year was now expected closer to the end of the
first quarter and into the second quarter of 2013, rather than
beginning a little earlier." The Bank warned that a drawn-out
political battle in the United States over raising the government's
borrowing limit and spending cuts could hit growth, sparking a loss
of confidence in the U.S. dollar and unravel financial markets.
Moreover, the World Bank also cut its forecast for developing
countries, which last year grew at their slowest pace in a decade,
to +5.5% in 2013 from +5.9% in the June forecast. It reported
growth in these countries should slowly pick up, reaching +5.7%
next year and +5.8% in the 2015. However, before the global
financial crisis roiled markets back in 2007, developing countries
as a whole were chalking up growth rates of around +7.5%, with
China growing at an annual rate of +10%.
The World Bank forecast that Chinese growth would reach a robust
+8.4% this year, slowing towards +7.9% by 2015. "By comparison,
growth in advanced economies should reach a very tepid +1.3% this
year, mitigated by spending cuts, spiked unemployment rates and
muted consumer and business confidence", the World Bank released in
On the horizon, activity should strengthen next year to +2.0% and
upwards of +2.3% in by 2015. While financial markets were propped
up by measures adopted last year to address the euro-zone debt
crisis, the World Bank urged Washington to outline a credible
medium-term fiscal plan that "avoids episodes of brinkmanship" over
raising the country's self-imposed debt ceiling, which threatens to
destabilize the global fabric.
The White House and the U.S. Congress did agree at the beginning of
January to extend tax cuts for American families earning less than
$450,000 a year as part of a deal over the so-called fiscal cliff.
However, lawmakers must still navigate the debt limit as well as
thrash out a deal over drastic automatic spending cuts that were
postponed until March 1.
"Policy uncertainty (in the United States) has already dampened
growth," the World Bank said. "Should policymakers fail to agree
such measures, a loss of confidence in the currency and an overall
increase in market tensions could reduce U.S. and global growth by
-2.3% and -1.4% respectively."