World Bank projects global economic growth at 2.8% in 2014

World Bank says acceleration in high-income economies will be an important impetus for developing countries

World Bank expects the global economy to pick up speed as the year progresses and projects growth at 2.8% in 2014, which is expected to rise further to 3.4% and 3.5% in 2015 and 2016, respectively. High-income economies will contribute about half of global growth in 2015 and 2016, compared with less than 40% in 2013.

The bank has lowered its forecasts for developing countries, now eyeing growth at 4.8% for 2014, down from its January estimate of 5.3%. Signs point to strengthening in 2015 and 2016 to 5.4% and 5.5%, respectively. China is expected to grow by 7.6% this year, but this will depend on the success of rebalancing efforts. If a hard landing occurs, the reverberations across Asia would be widely felt.

Despite first quarter weakness in the United States, the recovery in high-income countries is gaining momentum. These economies are expected to grow by 1.9% in 2014, accelerating to 2.4% in 2015 and 2.5% in 2016. The Euro Area is on target to grow by 1.1% this year, while the United States economy, which contracted in the first quarter due to severe weather, is expected to grow by 2.1% in 2014 (down from the previous forecast of 2.8%).

The acceleration in high-income economies will be an important impetus for developing countries. High-income economies are projected to inject an additional $6.3 trillion to global demand over the next three years, which is significantly more than the $3.9 trillion increase they contributed during the past three years, and more than the expected contribution from developing countries.

"The financial health of economies has improved. With the exception of China and Russia, stock markets have done well in emerging economies, notably, India and Indonesia. But we are not totally out of the woods yet. A gradual tightening of fiscal policy and structural reforms are desirable to restore fiscal space depleted by the 2008 financial crisis. In brief, now is the time to prepare for the next crisis," said Kaushik Basu, Senior Vice President and Chief Economist at the World Bank.

Regional highlights

In the East Asia and the Pacific region, 2013 marked another year of moderating annual growth, mainly due to domestic adjustment aimed at addressing imbalances accumulated during the years of credit-fueled expansion.

A modest recovery in the developing countries of Europe and Central Asia region remained on track in the first quarter of 2014, despite headwinds from global financial turbulence and the situation in Ukraine.

Activity in the Latin America and the Caribbean region has been weak, reflecting stable or declining commodity prices, the drop in first quarter US GDP growth and domestic challenges.

Growth in the developing countries of the Middle East and North Africa region is expected to strengthen gradually but remain weak during the forecast period following a 0.1% contraction in 2013. In oil-importing countries, economic activity is stabilizing.

Firming global growth and a modest pickup in industrial activity should help lift South Asia's growth to 5.3% in 2014, rising to 5.9% in 2015 and 6.3% in 2016.

In Sub-Saharan Africa strong domestic demand underpinned GDP growth of 4.7% in 2013, up from 3.7% the previous year. The regional aggregate was depressed by weak 1.9% growth in South Africa due to structural bottlenecks, tense labor relations and low consumer and investor confidence.

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