A Hectic 2014 Is Slowing Worldwide Economic Growth Estimates

A slow first quarter prompted the World Bank to revise growth estimates down for developing economies.

National Journal
Kaveh Waddell
June 11, 2014, 1 a.m.

Polit­ic­al and en­vir­on­ment­al set­backs in the first half of this year have slowed eco­nom­ic growth in 2014, es­pe­cially for de­vel­op­ing coun­tries, ac­cord­ing to the World Bank’s Glob­al Eco­nom­ic Pro­spects re­port re­leased on Tues­day.

The World Bank down­graded its eco­nom­ic fore­cast for de­vel­op­ing coun­tries from its Janu­ary es­tim­ate of 5.2 per­cent to 4.8 per­cent, mark­ing the third straight year of sub-5-per­cent eco­nom­ic growth for these coun­tries. A slow first quarter delayed an ex­pec­ted eco­nom­ic up­turn, prompt­ing the re­vised fore­cast. The re­port cited a slew of glob­al factors for this year’s slow growth: “Bad weath­er in the U.S., the crisis in Ukraine, re­bal­an­cing in China, polit­ic­al strife in sev­er­al middle-in­come eco­nom­ies, slow pro­gress on struc­tur­al re­form, and ca­pa­city con­straints” were all in­stru­ment­al in the slow­down.

The World Bank’s long-term fore­cast of eco­nom­ic growth in de­vel­op­ing coun­tries, however, is re­l­at­ively un­af­fected by this year’s slow start: The rate should reach 5.5 per­cent by 2016.

Sup­ply-side con­straints will af­fect many de­vel­op­ing eco­nom­ies, from East Asia to Lat­in Amer­ica to Sub-Saha­ran Africa. Many of these coun­tries have already com­pletely re­covered from the fin­an­cial crisis and are near­ing the lim­its of their cur­rent eco­nom­ic po­ten­tial. The re­port sug­gests a fo­cus on struc­tur­al re­form to al­le­vi­ate these lim­it­a­tions. “Spend­ing more wisely rather than spend­ing more will be key. Bot­tle­necks in en­ergy and in­fra­struc­ture, labor mar­kets, and busi­ness cli­mate in many large middle-in­come coun­tries are hold­ing back GDP and pro­ductiv­ity growth,” said the re­port’s lead au­thor, An­drew Burns.

In high-in­come coun­tries, growth is gain­ing mo­mentum, ac­cord­ing to the re­port. These coun­tries are ex­pec­ted to add $6.9 tril­lion to glob­al de­mand over the next three years, up from the $3.9 tril­lion in­crease in de­mand they con­trib­uted over the last three years.

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