Jun 14, 2013

    World Bank pares economic outlook

    THE World Bank cut its global growth forecast for this year after emerging markets from China to Brazil slowed more than projected, while budget cuts and slumping investor confidence deepened Europe's contraction.

    This came as global stock markets endured sharp losses and gyrations on the Tokyo market, the Asian region's biggest, continued.

    The world economy will expand 2.2 per cent, less than a January forecast of 2.4 per cent growth and slower than last year's 2.3 per cent, the bank said in a report released in Washington on Wednesday.

    It lowered its prediction for developing economies and sees the euro region's gross domestic product shrinking 0.6 per cent. In contrast, forecasts were raised for the United States and Japan, which was helped by fiscal and monetary stimulus.

    "Hard data so far this year points to a global economy that is slowly getting back on its feet," the Washington-based lender said in its twice-yearly report. "However, the recovery remains hesitant and uneven."

    The World Bank also slashed its growth forecast for China's economy this year to 7.7 per cent from 8.4 per cent, warning of a potential "sharp" slowdown triggered by a fall in investment.

    The projection is lower than the 7.8 per cent expansion the country recorded last year, which was its weakest in 13 years, and comes as a slew of data indicates the economy is struggling to pick up pace.

    Efforts by European policymakers to stem the region's debt crisis have alleviated the main risk to global growth and financial-market stability, according to the lender.

    The bank now sees smaller threats, including lower commodity prices and the impact of unwinding unprecedented monetary stimulus in advanced economies, including the US, the talk of which has sent currencies from India to Thailand lower and Mexican bond yields higher in recent weeks. Debate among US policymakers over when and how to dial back the Federal Reserve's US$85 billion-a-month programme of asset purchases has shaken financial markets.

    Tokyo's Nikkei lost more than 6 per cent, or 843.94 points, to 12,445.38, while the dollar hit 10-week lows against the yen on expectations that central banks' monetary-easing measures will end soon.

    Developing countries collectively were forecast by the World Bank to expand 5.1 per cent, less than the 5.5 per cent estimated in January.

    While China's slowdown was expected, "it is the timing, that it happened a bit quickly that caught people by surprise", World Bank chief economist Kaushik Basu said.

    He added: "Given that China used to grow at 10 per cent and it was pulling so much of the world along with that, that is indeed a concern."