World Bank cuts growth outlook as world enters 'new normal'

Wed Jun 12, 2013 7:06pm EDT
 
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WASHINGTON (Reuters) - The World Bank cut its outlook for global growth, saying the economy should expand more slowly this year than last as it cited a deeper-than-expected recession in Europe and a recent slowdown in some emerging markets.

In its twice-yearly Global Economic Prospects report, the bank warned that large developing economies, which have driven global growth in recent years, will not experience the same boom as they did before the global financial crisis and will have to focus on structural reforms to keep expanding.

The bank forecast the world's gross domestic product will grow 2.2 percent this year, slightly below last year's growth of 2.3 percent. In its last forecast in January, the World Bank estimated the world economy would expand 2.4 percent this year.

Andrew Burns, the report's lead author, said the global economy should be less volatile in the future, but growth should slow.

The World Bank estimates the global economy should expand after this year's trough to 3 percent in 2014, and to 3.3 percent in 2015.

"Growth is not slower because of inadequate demand but rather because, in our view, the very strong growth we saw in the pre-crisis period was due to that bubble phenomenon," Burns told reporters.

"What we're seeing now is more in line with the underlying growth potential," he said. "Therefore, this is a case of moving towards the new normal of the post crisis."

Part of that "new normal" will be slower growth rates in countries like Brazil, India, Russia and China, as commodities prices moderate and countries rebalance their economies, the World Bank said.

The World Bank cut its outlook for developing countries, which last year grew at their slowest pace in a decade, to 5.1 percent, from 5.5 percent in the January forecast. The bank said growth in these countries should slowly pick up in the future, to 5.6 percent next year and 5.7 percent in 2015.   Continued...