World Bank cuts growth outlook as Ukraine weighs

WASHINGTON Wed Jun 11, 2014 7:11am IST

A man walks next to a horse statue in a park at Pudong financial district in Shanghai April 2, 2014. REUTERS/Carlos Barria/Files

A man walks next to a horse statue in a park at Pudong financial district in Shanghai April 2, 2014.

Credit: Reuters/Carlos Barria/Files

Related Topics

WASHINGTON (Reuters) - The World Bank on Tuesday trimmed its global growth forecast, saying a confluence of events, from the Ukraine crisis to unusually cold weather in the United States, dampened economic expansion in the first half of the year.

The poverty-fighting institution predicted the world economy would grow 2.8 percent this year, below its prior forecast of 3.2 percent made in January, but it expressed confidence activity was already shifting to more solid footing.

In its twice-yearly Global Economic Prospects report, the World Bank said tensions between Ukraine and Russia hit confidence worldwide. The bank also cut its growth forecast for the United States to 2.1 percent from 2.8 percent to account for the toll taken on growth by the weather at the start of the year.

The U.S. economy contracted for the first time in three years in the first quarter, but it already appears to be rebounding. [ID:nL1N0OF0NN]

"Yes, there has been a big downgrade in 2014," Andrew Burns, the report's lead author, said in an interview. "But that's mainly a reflection of stuff that's already happened."

The World Bank expects growth to quicken later this year as richer economies continue their recovery. It kept its global growth forecasts for the next two years unchanged at 3.4 percent and 3.5 percent, respectively.

The forecasts assume tensions in Ukraine will persist this year but won't worsen. An escalation in the crisis could further shake global confidence, prompting firms to postpone investments and crimping growth in developing economies by as much as 1.4 percentage points under the worst-case scenario, the bank said.

"The markets, investors, don't like uncertainty," Burns said. "It's also pretty clear that there's a potential for tensions (in Ukraine) to develop, and for the situation to degrade."

Russia and Ukraine are seeking to resolve a gas pricing dispute that is at the heart of the crisis between the two countries. Failing to do so could set back peace moves that are gaining momentum after weeks of violence in east Ukraine. [ID:nL5N0OR19Z]

The World Bank also fretted about the possibility of financial volatility in emerging markets once the U.S. Federal Reserve starts to raise interest rates, mopping up some of the liquidity glut in global markets.

Burns said emerging markets have not fully priced in the potential for a monetary tightening in richer economies.

"The real concern is what happens in 2015, 2016," Burns said.

Burns also said developing countries need to do more to address structural issues that are holding back growth.

This year marks the third straight year that developing economies would expand by less than 5 percent, a factor that has contributed to rising debt-to-GDP ratios that could make those economies more vulnerable, Burns said.

"Although the situation in developing countries is pretty good ... it isn't the kind of growth they're going to need if they're going to make the very solid inroads into poverty that we're hoping," he said.

(Reporting by Anna Yukhananov; Editing by Andrea Ricci)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Shares Hit Record

Sensex, Nifty rise to second consecutive record high

Sensex surges 500 points on BOJ easing, L&T gains

The BSE Sensex and Nifty surged to record highs for a second consecutive session on Friday after Bank of Japan's surprise expansion of its massive stimulus programme raised hopes for additional foreign inflows, boosting blue-chips such as Larsen & Toubro.  Full Article 

REUTERS SHOWCASE

Wilful Negligence?

Wilful Negligence?

SEBI piles pressure on Sahara to sell overseas hotels  Full Article 

Indian Economy

Indian Economy

India's fiscal deficit in H1 almost 83 pct of full-year target.  Full Article 

M&M Earnings

M&M Earnings

M&M Q2 net profit down 4 percent, hit by poor monsoon.  Full Article 

Ban on E-Cigs?

Ban on E-Cigs?

Govt considers ban on e-cigarettes, sale of single smokes.  Full Article 

Commodities

Commodities

Silver futures in India hit four-year low on global cues.  Full Article 

BOJ Policy

BOJ Policy

BOJ shocks markets with surprise easing as inflation slows.  Full Article 

Shadow Banking

Shadow Banking

China's shadow banking sector growing rapidly, third largest in world - FSB.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage