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In 2014, global growth set to accelerate

The Sydney News.Net Wednesday 15th January, 2014

WASHINGTON - Global growth is set to accelerate in 2014 as advanced economies turn a corner - five years after the global financial crisis, said the World Bank in a new report released Wednesday.


Growth is projected to strengthen to 3.2 percent this year, 3.4 percent in 2015, and 3.6 percent in 2016 - up from 2.4 percent in 2013.

"Most of the acceleration is expected to come from high-income countries, as the drag on growth from fiscal consolidation and policy uncertainty eases and private sector recoveries gain firmer footing," the World Bank said its newly-released Global Economic Prospects report.

"For the first time in five years, high income countries are accelerating. They're going to be contributing to global growth in a way that they haven't for some time. That's going to be good for developing countries," says Andrew Burns, lead author of the World Bank's Global Economic Prospects.

The World Bank projects the U.S. economy will expand from 1.8 percent last year to about 2.8 percent in 2014. World Bank chief economist Kaushik Basu expects a similar story in Europe which emerged from recession last year.

"The latest estimates show Europe grew by minus 0.4 percent, but we expect this to turn positive, gently positive - 1.1 is not huge growth but given Europe's difficulties over the last six years, this is indeed good news," says Basu.

Although political instability continues to pose downside risks for parts of North Africa and the Middle East, the biggest question mark remains the impact of the U.S. central bank's decision to scale back monetary stimulus.

But Basu says the effects are likely to be mild because many countries started feeling the impact of higher interest rates after the Fed signaled its intentions by the middle of 2013.

"We saw that in South Africa, in Indonesia, in India, where the exchange rate was crashing around. So I feel actually, at one level, a lot of the adjustment has already taken place," says Basu, reports VOA news.

"So when the tapering actually began as it now has from 85 billion dollars a month to 75 - it's actually not having that much of an effect because part of the effect has already taken place."

However, if a tapering of the Federal Reserve's asset purchase program is met with an abrupt market adjustment, capital flows could decline sharply, placing renewed stress on vulnerable developing economies, the report warned.

"In a scenario where long-term interest rates rise rapidly by 100 basis points, capital inflows could decline by as much as 50 percent for several quarters," it said.

While major tail-risks have subsided, fiscal policy uncertainty in the United States, a protracted recovery in the euro zone, and possible set-backs in China's restructuring continue to pose risks to global outlook, writes CNBC.

Growth in China, still the world's fastest growing economy, is expected to remain steady at 7.7 percent.

But Basu says he is most excited about prospects for the sub-Saharan regions of Africa - projected to grow 5.3 percent in 2014.

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