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Asia Today ISSN 1861-4604 Thursday, April 26, 2018

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Global economy to grow at 3 pc this year, says World Bank

Projection of 3.4 percent

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WASHINGTON - Global economy is expected to grow by 3 percent this year, down from a projection of 3.4 percent in June, despite an improving U.S. economy and low fuel prices as recovery has been sputtering in the Euro Area and Japan as legacies of the financial crisis linger, the World Bank stated in its latest report.

After growing by an estimated 2.6 percent in 2014, the global economy is projected to expand by 3 percent this year, 3.3 percent in 2016 and 3.2 percent in 2017, predicts the World Bank's twice-yearly flagship Global Economic Prospects (GEP) report released Tuesday.

Underneath the fragile global recovery lie increasingly divergent trends with significant implications for global growth.

The report adds to signs of a growing disparity between the U.S. and other major economies while tempering any optimism that a plunge in oil prices will boost output.

It points out that while activity in the United States and the United Kingdom is gathering momentum as labor markets heal and monetary policy remains extremely accommodative, yet risks to the outlook remain tilted to the downside due to persistently weak global trade.

There is possibility of financial market volatility as interest rates in major economies rise on varying timelines.

The extent to which low oil prices may strain balance sheets in oil-producing countries is still not known.

There is also the risk of a prolonged period of stagnation or deflation in the Euro Area or Japan.

"The global economy today is much larger than what it used to be, so it's a case of a larger train being pulled by a single engine, the American one," World Bank Chief Economist Kaushik Basu told reporters on a conference call Wednesday.

"This does not make for a rosy outlook for the world."

The Washington-based lender upgraded its forecast for U.S. growth to 3.2 percent this year from a 3 percent estimate given in June. It reduced its projections for the euro area and Japan, citing lingering effects from the financial crisis and "structural bottlenecks."

It also cut its forecast for China, saying the world's second-biggest economy was undergoing a "managed slowdown." China is expected to expand 7.1 percent, down from the 7.2 percent pace the bank projected in October and a 7.5 percent estimate in June.

Japan will expand at a 1.2 percent clip, down from the 1.3 percent projected in June, according to the bank.

The World Bank is the latest institution to lower its global estimate amid a recovery that has repeatedly disappointed policymakers.

The IMF trimmed its 2015 outlook in October to 3.8 percent, citing weak demand and residual debt from the financial crisis. It plans to update its global forecast next week.

The 19-nation euro area is projected by the World Bank to grow 1.1 percent in 2015, down from a June estimate of 1.8 percent.

It also cut its forecast for global growth in 2016 to 3.3 percent from 3.5 percent.

The bank sees average oil prices falling 32 percent this year, a decline that is historically associated with a boost to global GDP of about 0.5 percent.

Yet the impact on growth may be smaller in 2015 and 2016 because of other headwinds, including weak confidence that encourages saving rather than spending, and a "significant" income shift from oil-producing countries to those that are net consumers, the World Bank said.

"It is as challenging a moment as it gets for economic forecasting," Basu said. "While lower oil prices are good overall for the global economy, the process of falling creates uncertainty, winners and losers."

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