BUSINESS

With stagnant Europe and Japan, World Bank cuts 2015 forecast for global economic growth

01/13/2015 04:43 EST | Updated 03/15/2015 05:59 EDT
WASHINGTON - The World Bank, citing stagnation in Europe and Japan and a slowdown in China, downgraded its forecast for the global economy this year. It also reported that world economic growth came in below expectations in 2014.

The bank predicts the world economy will expand 3 per cent this year, up from 2.6 per cent in 2014. Last June, World Bank economists had forecast 3.4 per cent global economic growth this year and 2.8 per cent last year.

"The recovery has been sputtering in the Euro Area and Japan as legacies of the financial crisis linger ... China, meanwhile, is undergoing a carefully managed slowdown," the bank said Tuesday in the first of its twice-yearly Global Economic Prospects reports for 2015.

Plunging oil prices and stronger growth in the United States are expected to help boost global growth in 2015.

The bank expects the U.S. economy to grow 3.2 per cent this year, up from 2.4 per cent in 2014.

Growth among the 19 countries that use the euro currency is expected to pick up modestly — to 1.1 per cent in 2015 from 0.8 per cent last year. Likewise, the Japanese economy is expected to rebound to 1.2 per cent growth this year from 0.2 per cent in 2014.

The bank expects China's economy to expand 7.1 per cent this year, down from 7.4 per cent in 2014. The slowdown reflects in part the Chinese government's effort to rein in excessive lending and wasteful investment.

Overall, the bank expects high-income countries to grow 2.2 per cent this year, up from 1.8 per cent in 2014. Developing countries will grow 4.8 per cent, an improvement from 4.4 per cent in 2014.

The bank sees risks that could spoil its forecast. There's potential for a financial crisis if investors pull money out of emerging markets to take advantage of rising interest rates and improving economic prospects in the United States. That could cause emerging market currencies to plummet and squeeze companies that borrowed in U.S. dollars — a partial replay of the Asian financial crisis of 1997-1998.

Conflict in Ukraine and the Middle East could disrupt economic growth. The Chinese economy could tumble into a "disorderly slowdown." Sub-Saharan African economies, expected to grow a healthy 4.6 per cent in 2015, could be devastated instead if the Ebola outbreak isn't contained.