Slow Global Growth to See a Rebound in 2014
Faster Increase in Public and Private Investment and Policy Reform to Drive Productivity Can Counter Long Term Slowdown
The outlook for 2014 over 2013:
- Global growth of Gross Domestic Product(GDP), adjusted for inflation, will rebound from 2.9 percent in 2013 to 3.3 percent in 2014 – a slight downward revision from our projection of 3.5 percent, in February.
- Across mature economies, the 2014 growth outlook has improved significantly to 2.0 percent growth in 2014, compared to 1.3 percent in 2013.
- The uptick is primarily due to the Eurozone which is expected to return to a positive growth rate of 1 percent in 2014, moderately picking up the pace from a weak recovery. The United States is the second largest contributor (after China) to the somewhat stronger outlook for 2014, where growth is expected to increase from 1.9 percent in 2013 to 2.3 percent in 2014. However, due to a weak start of the year following bad winter weather, the outlook for 2014 has been revised down to 2.3 percent from our earlier forecast of 3.0 percent in 2014.
- GDP growth in emerging and developing economies as a whole is projected to decline slightly by 0.2 percentage point from 4.9 percent in 2013 to 4.7 percent in 2014. The slower increase is primarily driven by China, which in our projections of the official growth rates will continue to slow down from 7.7 percent in 2013 to 7 percent in 2014. However, structural and policy challenges continue to weigh heavily on China’s economic transformation, which creates a significant margin of uncertainty on this projection.
- Among the other emerging markets, Brazil and Russia, Central Asia and South East Europe are also expected to witness a deceleration in growth rates, while India, Mexico and other developing Asia are likely to see a slight improvement in 2014, up from a weaker growth performance over 2013.
Projections for2014-2019 and 2020-2025
- Overall, the world’s largest mature and emerging economies still face many structural flaws and policy constraints that hinder more investment and faster productivity growth, making the medium-term outlook for a significantly faster path of global growth more uncertain.
- The medium-term outlook for the U.S. and other mature economies remains slightly more positive than their long-term trend, as these economies still have some way to go toward closing remaining output gaps. The U.S. is therefore expected to grow at 2.4 percent, on average per year, and the Euro Zone at 1.2 percent from 2014-2019. While the Eurozone is expected to maintain the same growth rate during 2020-2025, the U.S. is expected to see a decline in its long-term growth to 1.7 percent.
- The medium term slowdown in the growth trend of emerging and developing markets is more dramatic. China needs to rebalance its economy from rapid investment-intensive ‘catch-up’ growth towards more a consumption- and services-driven economy. India, Brazil, and Mexico face major structural challenges to unlock labor and product markets and create a more efficient resource allocation. As a result the structural ‘speed limits’ of these economies are likely to reduce emerging market growth from 4.3 percent, on average per year, from 2014-2019 to 3.2 percent from 2020-2025.
- Emerging markets constituted just below half of total world GDP in 2012, when converted to US$ at purchasing power parities, up from about one third in 2000. In the next decade this shift will continue at a much slower speed. By 2025, emerging markets will capture just over half of world GDP, with China clearly being the largest economy in the world.
- The upsides for the medium term growth outlook for the global economy are a significant faster increase in public and private investment and an acceleration in the economies’ reform agenda to accelerate productivity growth
