World economy bounces back

Five years after the global financial crisis, the world economy is showing signs of bouncing back this year, pulled along by a recovery in high-income economies, said the World Bank's latest Global Economic Prospects report.

Developing-country growth is also firming, thanks in part to the recovery in high-income economies and moderating, but still strong growth in China.

Growth prospects for 2014 are, however, sensitive to the tapering of monetary stimulus in the United States, which began earlier this month, and to the structural shifts in China's economy.

The report forecasts growth in developing countries to pick up from 4.8 percent in 2013 to a slower than previously expected 5.3 percent this year, 5.5 percent in 2015 and 5.7 percent in 2016.

While the pace is about 2.2 percentage points lower than during the boom period of 2003-07, the slower growth is not a cause for concern.

Almost all of the difference reflects a cooling off of the unsustainable turbo-charged pre-crisis growth, with very little due to an easing of growth potential in developing countries. Moreover, even this slower growth represents a substantial (60 percent) improvement compared with growth in the 1980s and early 1990s.

Global GDP is projected to grow from 2.4 percent in 2013 to 3.2 percent this year, stabilising at 3.4 percent and 3.5 percent in 2015 and 2016, , with much of the initial acceleration reflecting a pick-up in high-income economies.

For high-income countries, the drag on growth from fiscal consolidation and policy uncertainty will continue to ease, accelerating economic growth from 1.3 percent in 2013 to 2.2 percent this year, stabilising at 2.4 percent for each of 2015 and 2016. Amongst high-income economies, the recovery is most advanced in the US, with GDP expanding for 10 quarters now.

The US economy is projected to grow by 2.8 percent this year (from 1.8 percent in 2013), firming to 2.9 and 3.0 percent in 2015 and 2016.

Growth in the Euro Area, after two years of contraction, is projected to be 1.1 percent this year, and 1.4 and 1.5 percent in 2015 and 2016.

"Global economic indicators show improvement. But one does not have to be especially astute to see there are dangers that lurk beneath the surface.

The Euro Area is out of recession but per capita incomes are still declining in several countries.

"We expect developing country growth to rise above five percent in 2014, with some countries doing considerably better, with Angola at eight percent, China 7.7 percent, and India at 6.2 percent.

But it is important to avoid policy stasis so that the green shoots don't turn into brown stubble," said World Bank, Senior Vice President and Chief Economist, Kaushik Basu.

The report urges developing countries to implement structural reforms that would help raise the capacity of their economies, if they are to regain their pre-crisis growth rates.

It outlines some measures that policymakers could implement to set in motion a virtuous cycle of stronger investment, including foreign investment, and output growth over the medium term.