The global economy is expected to continue mending gradually, after a long and uneven recovery. According to the International Monetary Fund (IMF), the world economy may finally be at a turning point with global growth expected to accelerate this year behind the rising strength of the United States and other major developed countries. The International Monetary Fund latest forecast of economic growth projects 4 percent in 2014 whereas it was 3.3 percent growth in 2013. But policymakers cannot afford to relax their efforts, with old dangers remaining and new risks emerging. The world finance leaders are citing some growing threats such as deflation in rich nations and capital flight in developing countries and are also warning of lingering effects of the last recession. Deflation dampens business investment and people spending and is very difficult to overcome.
Global economic conditions have improved during the past six months and the advanced economy policymakers have successfully defused two of the biggest short-term risks- the threat of a euro area breakup and a sharp fiscal contraction in the United States to global activity. The World Bank’s new report has forecasted a significant pickup in growth this year, and most of the advancement will come from advanced countries, particularly the U.S. as the private sector gains firmer footing and the drag from budget cuts and policy uncertainty eases.
According to the World Bank, the U.S. economy is projected to grow 2.8% this year, up from 1.8% estimated for 2013.According to many private analysts, an American economy benefits from a recovering stronger manufacturing, housing market and consumer demand, as many have become that financially stable to spend more for goods and services. Europe is recovering from its recession and this region is expected to show small positive growth this year, and after nearly two decades of struggling with deflation, Japan is also likely to expand moderately. According to the World Bank forecast, the major developed countries combine will grow 2.2% this year which is a significant improvement over the estimated 1.3% rate last year. However, the developing countries such as China and India will grow 5.3% this year, compared with 4.8% last year.
In the developing countries growth appears to be strengthening, but the downside risks continue to threaten the global economic recovery. The Federal Reserve’s upcoming moves after its decision in December to start reducing its monthly bond-buying stimulus program is one of the major risks. According to the World Bank report, the Fed’s pullback of monetary stimulus has the potential to throw a great impact at the worldwide economy. At this point, World Bank officials are expecting only modest effects on developing countries from an orderly reversal of monetary policy by the Fed but they also noted that there could be problems if markets react negatively. The World Bank also issued a warning that the capital flows to developing countries could be cut by 50% or more for several months this year depending on the severity of the market reaction. Such a reaction would hinder the economic growth worldwide.