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At the start of the year in January, World Bank Managing Director Bertrand Badre estimated that this year’s global economy growth will reach 3.2%. Despite the announcement of several major events since that time, including a reduction in US stimulus and a looming deflation crisis in Europe, Badre is reluctant to modify his prediction, but claims that rebalancing is ongoing.
The World Bank’s latest forecast was an upgrade from a previous 3% estimate made in June 2013.
Badre cited how emerging markets such as Indonesia have responded appropriately to the tapering by hiking up interest rates and slashing fuel subsidies in efforts to dampen the effects..
Part of the World Bank’s reasoning for holding off further revisions is the strong showing of other developed countries offsetting the contraction the US economy experienced during the first quarter. The poor performance of the largest economy in the world was hampered at that time by a particularly severe winter season that affected market activity and business supply levels. The US, however, seems ready to recover in the second quarter behind an expanding manufacturing industry.
While Badre conceded that not all countries have handled this year’s economic shake ups as well as they could have, he still believed that the general direction of the global economy is pointing the right way.
A specific issue raised by Badre was the trouble the eurozone is undergoing, especially the topic of deflation which has become a likely situation to happen in the region. An announcement of measures to be taken to tackle the problem is expected out today from the European Central Bank led by its President, Mario Draghi. Speculation is high that interest rates, already at a low of 0.5%, will be pushed further down, possibly in to the negative, as an effort to revive a stagnating economy and a rising debt problem among many of the 18 countries sharing the euro currency.
