OromianEconomist

2015 Global Economic Prospects January 15, 2015

The global economy is still struggling to gain momentum as many high-income countries continue to grapple with the legacies of the global financial crisis and emerging economies are less dynamic than in the past. After rising marginally in 2014, to 2.6 percent, world GDP will grow by an estimated 3.0 percent in 2015 and 3.3 percent in 2016, supported by gradual recovery in high-income countries, low oil prices, and receding domestic headwinds in developing countries. Developing economies are expected to see an increase in growth from 4.4 percent in 2014 to 4.8 percent and 5.3 percent in 2015 and 2016, respectively. Lower oil prices will lead to sizeable real income shifts to oil-importing countries from oil-exporting ones. Risks to the global outlook remain tilted downwards. Weak global trade growth is anticipated to persist during the forecast period, potentially for longer than currently expected should the Euro Area or Japan experience a prolonged period of stagnation or deflation. Financial conditions could become volatile as high-income economies tighten monetary policy on diverging timelines. Rapid reassessment of risk could also be triggered by a spike in geopolitical tensions, bouts of volatility in commodity markets, or financial stress in major emerging market economies. Worryingly, the weak recovery in many high-income economies and slowdowns in several large emerging markets may be a symptom of deeper structural weaknesses.
Developing countries face significant policy challenges in an environment of weak global growth and considerable uncertainty. Fiscal buffers need to be rebuilt to ensure the effectiveness of fiscal policy in the future. Central banks need to balance policies to support growth against measures to stabilize inflation and currencies or to bolster financial stability. Progress on implementing structural reforms must be continued to boost long-term growth. The fragile global outlook makes the implementation of growth enhancing policies and structural reforms even more urgent to improve the odds of achieving the World Bank Group’s goal of ending extreme poverty by 2030.
The current juncture presents a window of opportunity for reform. The sharp decline in oil prices means that policymakers could implement subsidy and tax reforms to help rebuild fiscal space or finance better targeted pro-poor policies while removing distortions that hinder activity. The challenge now is for policymakers to seize this opportunity.
Kaushik Basu, Chief Economist and Senior Vice President
The World Bank

Read more at https://openknowledge.worldbank.org/handle/10986/20758

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