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STORY: WORLD BANK/ GLOBAL ECONOMIC PROSPECTS
TRT: 3:31
SOURCE: WORLD BANK
RESTRICTIONS: EMBARGOED UNTIL JANUARY 14, 2014, 08:00 PM EST (JANUARY 15, 01:00 AM GMT)
LANGUAGE: ENGLISH / FRENCH / NATS
DATELINE: 14 January 2014, Washington, DC / FILE
FILE – RECENT
1.Close up, World Bank building sign
2. Wide shot, people walking in World Bank building hallways
DATELINE: 14 January 2014, Washington, DC
3. SOUNDBITE (English) Andrew Burns, Lead Author, Global Economic Prospects Report, World Bank Group:
“Well, what we find in Global Economic Prospect this year is something that is new. For the first time in five years, high income countries are accelerating, they’re going to be contributing to global growth, in a way that they haven’t for some time. That’s going to be good for developing countries, it’s a tail-wind, means exports are going to be stronger and they’re not going to have to do so much of the work themselves in the next couple of years. Developing countries we also see accelerating, not to the same degree, largely because they’ve already recovered from the crisis and they’re already doing pretty well. A little bit of cloud in the outlook is the taper, how that might affect developing countries. Our expectations is its going to be a relatively smooth process, indeed. What we see in the first few weeks of January is positive and encouraging news. Going forward, as interest rates tighten in high income countries we are going to see tighter conditions for developing countries, higher interest rates and lower capital flows, but not so low as to disrupt growth in developing countries.
FILE – RECENT
4. Wide shot, World Bank entrance
DATELINE: 14 January 2014, Washington, DC
5. SOUNDBITE (French) Andrew Burns, Lead Author, Global Economic Prospects Report, World Bank Group:
“We note in this new edition of the "Global Economic Prospects " report that growth in rich countries should accelerate fairly important this year. Particularly in the euro zone, where growth will go from 0.4% in 2013 to 1.1% in 2014. This represents a very significant increase in the region. This does not mean that this improvement is observed in all the economies of the region. Some will benefit from stronger growth while others will experience less growth. Nevertheless, we anticipate an increase in growth in almost all countries of the euro zone. In the U.S., growth will also increase by 1.8% in 2013 to 2.8% in 2014. For developing countries prospects also improve, the growth rate will go from 4.8% in 2013 to around 5.3% in 2014. These trends are generally very positive.”
FILE – RECENT, Washington, DC
6. Close up, “Our Dream is a World Free of Poverty” sign
DATELINE: 14 January 2014, Washington, DC
7. SOUNDBITE (English) Andrew Burns, Lead Author, Global Economic Prospects Report, World Bank Group:
“Well it’s important to recognize that what’s happening in the United States is that a much improved growth situation that’s good for developing countries, but at the same time there’s going to a tightening in monetary policy, but these things happen hand in hand, so it’s a tail wind coming from stronger growth in the United States and a bit of a head wind from tighter financial conditions. The analysis that we do in the reports suggest that capital flows to developing countries in a smooth transition to higher interest rates in the United States are likely to decline as a percentage of developing country GDP from 4.6% in 2013 to about 4.1-4.0% in 2016. So, a significant decline but something that’s very manageable particularly, as exports are going to be stronger throughout that period. But we do look at situations where there might be a disorderly adjustment, something like we saw in the summer of last year, when interest rates in the US jumped up by 100 basis points in a very short period. If that were to reoccur, we would see potentially a significant decline for a short period of time in developing countries capital flows, almost 50% decline in a short period. That could have significant impact for growth and even for the potential to spark a crisis in one or more vulnerable developing countries.”
FILE – RECENT
8. Wide shot, World Bank Building
The World Bank’s newly-released Global Economic Prospects (GEP) report says that the world economy is projected to strengthen this year, with growth picking up in developing countries and high-income economies appearing to be finally turning the corner five years after the global financial crisis.
The firming of growth in developing countries is being bolstered by an acceleration in high-income countries and continued strong growth in China. However, growth prospects remain vulnerable to headwinds from rising global interest rates and potential volatility in capital flows, as the United States Federal Reserve Bank begins withdrawing its massive monetary stimulus.
Global GDP growth is projected to firm from 2.4 percent in 2013 to 3.2 percent this year, stabilizing at 3.4 percent and 3.5 percent in 2015 and 2016, respectively, with much of the initial acceleration reflecting stronger growth in high-income economies.
Growth in developing countries will 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.
For high-income countries, the drag on growth from fiscal consolidation and policy uncertainty will ease, helping to boost economic growth from 1.3 percent in 2013 to 2.2 percent this year, stabilizing 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, respectively. 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, respectively.
Developing countries face counterbalancing forces from high-income countries. The strengthening in high-income countries will boost demand for developing country exports, on the one hand, while rising interest rates will dampen capital flows, on the other. The report projects global trade to grow from an estimated 3.1 percent in 2013 to 4.6 percent this year and 5.1 percent in each of 2015 and 2016.
However, weaker commodity prices will continue to temper trade revenues. Between their early-2011 peaks and recent lows in November 2013, the real prices of energy and food have declined by 9 and 13 percent, respectively, while those of metals and minerals have fallen by 30 percent. These downward pressures on commodity prices are expected to persist, in part reflecting additional supply.
Private capital inflows to developing countries remain sensitive to global financial conditions. As high-income monetary policy normalizes in response to stronger growth, global interest rates are projected to slowly rise. The impact of an orderly tightening of financial conditions on developing-country investment and growth is expected to be modest, with capital flows to developing countries projected to ease from about 4.6 percent of developing country GDP in 2013 to 4.1 percent in 2016.
However, should the adjustment be disorderly, as it was in response to speculation about when a taper might begin during the spring and summer of 2013, interest rates could rise much more quickly. Depending on the severity of the market reaction, capital flows to developing countries could be cut by 50 percent or more for several months. In such a scenario, countries that have large current account deficits, large proportions of external debt and those that have had big credit expansions in recent years would be among the most vulnerable.
The report points out that, although the main tail risks that have preoccupied the global economy over the past five years have subsided, the underlying challenges remain. Moreover, while developing countries responded to the global financial crisis by deploying fiscal and monetary stimuli, the scope for such actions has declined, with government budgets and current account balances in the red in most countries.
Policy makers need to give thought now to how they would respond to a significant tightening of global financing conditions. Countries with adequate policy buffers and investor confidence may be able to rely on market mechanisms, counter-cyclical macroeconomic and prudential policies to deal with a decline in flows. In other cases, where the scope for maneuvering is more limited, countries may be forced to tighten fiscal policy to reduce financing needs or raise interest rates to incite additional inflows. Where adequate foreign reserves exist, these can be used to moderate the pace of exchange rate adjustments, while a loosening of capital inflow regulation and incentives for foreign direct investment might help smooth adjustment. Finally, by improving the longer term outlook, credible reform agendas can go a long way towards boosting investor and market confidence. This could set in motion a virtuous cycle of stronger investment, including foreign investment, and output growth over the medium term.
