Economic recovery faces ‘major risks’

Released this week, the World Bank Group’s global economic prospects report found that underneath the fragile global recovery lie increasingly divergent trends with significant implications for global growth.

“Activity in the United States and the United Kingdom is gathering momentum as labor markets heal and monetary policy remains extremely accommodative,” the report said.

“But 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 with growth slowing to a still-robust 7.1 per cent this year (7.4 percent in 2014), and a projected 7 per cent in 2016 and 6.9 percent in 2017, while the report found that the oil price collapse will result in winners and losers.

“Risks to the outlook remain tilted to the downside, due to four factors," it said.

“First is persistently weak global trade. Second is the possibility of financial market volatility as interest rates in major economies rise on varying timelines.

“Third is the extent to which low oil prices strain balance sheets in oil-producing countries.

“Fourth is the risk of a prolonged period of stagnation or deflation in the Euro Area or Japan.”

World Bank Group president Jim Yong Kim said that in this uncertain economic environment, developing countries need to judiciously deploy their resources to support social programs with a laser-like focus on the poor and undertake structural reforms that invest in people.

“It’s also critical for countries to remove any unnecessary roadblocks for private sector investment. The private sector is by far the greatest source of jobs and that can lift hundreds of millions of people out of poverty.”

Meanwhile, the stalled recovery in some high-income economies and even some middle-income countries may be a symptom of deeper structural malaise, said Kaushik Basu, World Bank chief economist and senior vice president.

“As population growth has slowed in many countries, the pool of younger workers is smaller, putting strains on productivity,” he said, adding that there are some silver linings behind the clouds.

“The lower oil price, which is expected to persist through 2015, is lowering inflation worldwide and is likely to delay interest rate hikes in rich countries.

“This creates a window of opportunity for oil-importing countries, such as China and India; we expect India’s growth to rise to 7 percent by 2016.”

What is critical, Mr Basu said, is for nations to use this window to usher in fiscal and structural reforms, which can boost long-run growth and inclusive development.