TUAC - TRADE UNION ADVISORY COMMITTEE TO THE OECD

13/06/2013

The World Bank has released the latest edition of its twice-yearly Global Economic Prospects (GEP) report, which contains the Bank's updated global growth forecasts and some policy recommendations for developing countries.

The Bank's latest forecasts are generally in line with those published by the IMF in April, notably for another year of slow global growth in 2013 followed by gradual improvement to rates that will still be far below pre-2008 levels, thus doing little to diminish the global jobs deficit. The Bank is, however, even more pessimistic than the Fund for short-term prospects in the euro area, where it predicts that economic output will shrink by 0.6 per cent this year versus the 0.3 per cent decline forecast by the IMF.

It should be noted that, apart from the euro area, the aggregated growth figures published by the World Bank and IMF are not directly comparable since the Bank uses market exchange rate weighting, while the Fund uses purchasing power parity (PPP) weighting. The GEP's headline forecast of 2.2 per cent global growth in 2013 is equivalent to 3.1 per cent using PPP weights – two months ago the IMF predicted 3.3 per cent growth for 2013.

The Bank is at least partially optimistic for medium-term prospects (the GEP's subtitle is "Less volatile but slower growth") in affirming that the global economy is entering a period of more stable growth because "the extreme risks and swings in perceptions that have driven global capital and output markets have eased significantly" (p. 28). However, it points out several new challenges faced by developing and emerging-market economies:

• With the prospect of a reduction of "quantitative easing" and other loose monetary policies in advanced countries, interest costs in developing regions could increase and negatively affect economic growth.
• The commodity price boom may have come to an end (metal prices are already down 30 per cent from their February 2011 peak), which could have a significant negative impact on commodity exporters, particularly in Sub-Saharan Africa.
• Some economies in East Asia-Pacific and Latin America may face additional constraints that are already manifesting themselves in inflation, asset-price bubbles and deteriorating current account balances.

Specifically for China, the report concurs with the IMF in predicting that the country's GDP increase this year, at 7.7 per cent, will be the lowest since 1999. It urges that China moves forward with economic "rebalancing", that is away from the export- and investment-driven growth model and towards: "Ensuring strong and stable consumption through raising household incomes … along with the reorientation of investments toward agriculture, human capital and services" (p. 130).

The complete June 2013 edition of the Global Economic Prospects report, should be available shortly on the World Bank's web site, along with summary material in six other languages, at:

www.worldbank.org/globaloutlook