Washington — The World Bank says that in 2013 the global economy will continue to experience very slow but steady growth, citing the need for structural fixes in high-income countries and weaker-than-expected growth in developing countries, but it says the risk of a large financial crisis has diminished.
Speaking to reporters in a January 15 conference call to preview the World Bank's "Global Economic Prospects 2013" report, World Bank Senior Vice President and Chief Economist Kaushik Basu predicted that the overall growth rate for the coming year would be 2.4 percent, saying the economic situation is better than it was at the start of 2012, but that slightly improved prospects would not translate to much improvement over the 2.3 percent growth that the world experienced in 2012.
"The overall situation ... remains difficult. Four years ago the world plunged into a deep crisis and since then it has been a bumpy journey. There were big dangers in 2011 ... but the view that we take now is that on the financial side [and] the monetary side there is an easing of the situation and the downside risks have diminished. The market conditions look better. The [European Union]'s borrowing costs are a little lower than what was the case earlier, so overall the situation looks better," Basu said.
Basu said the World Bank expects the largest developing countries to experience some recovery, projecting that Brazil, China and India would see growth at 3.4 percent, 8.4 percent and 6.1 percent respectively. Astute policy changes from leading industrialized countries have given the global economy some breathing space and greater liquidity, but Basu said those changes are serving to buy some time rather than supply needed structural fixes, particularly in the Eurozone countries.
China has experienced a growth rate averaging around 10 percent over the past 20 years, but Basu said that level of growth cannot be sustained. He predicted that India, whose economic development began to take off during the past decade, will begin to close the gap by 2015 when China will see a 7.5 percent growth rate while India's economy will be expanding by 7 percent.
The U.S. economy is projected to grow at a rate of 1.9 percent in 2013. Basu said the deal reached between President Obama and U.S. lawmakers on taxes at the end of 2012 was very comforting, and he believes they will also resolve their current disagreement over raising the U.S. debt ceiling. He said he hopes that structural reforms will prevent these "flash points" from occurring with such regularity.
"For developing countries nothing is as important as a stable, buoyant U.S. economy," he said.
Andrew Burns, the manager of the World Bank's Macroeconomics Team, told reporters the United States needs a clear path to long-term budgetary consolidation and movement toward a more sustainable path.
"To the extent that that's achieved, then I don't think we need any more consolidation necessarily in the U.S. this year," Burns said.
In general, Burns said, high-income economies such as in the United States, Japan and Europe are continuing to struggle in the aftermath of the financial crisis, and the growth of developing countries will average 5.5 percent, rather than the 6 percent to 7 percent they enjoyed in the late 2000s.
To get past this relatively weak growth, Burns said, "the trick is ... this has to be achieved by putting the emphasis once again on structural policies, on investing in infrastructure, investing in health and education to support that sustained growth of the supply side of their economies in the same way that they were so able to do in the early 1990s and 2000s."
While problems in the Eurozone and U.S. fiscal difficulties continue to create financial risks, Burns said, the amplitude of those risks has been reduced and their likelihood of being realized has significantly diminished. He cited improvements in the U.S. housing and labor markets, and said there would be growth if financial-sector improvements in Europe begin to have their desired effect.
Burns said 2013 will be a "period of volatility and a period of challenge for developing countries." He urged those countries to maintain a steady hand on their fiscal and monetary policy levers and "not to react too forcefully to changes in the situation in the high-income world."