World Bank sees slower global growth, urges Fed to wait on rates

The World Bank on Wednesday warned of challenges to global growth posed by lower commodity prices and the prospect of higher borrowing costs amidst a looming rise in US interest rates.

The World Bank Group's latest Global Economic Prospects report, released on 10 June, projects  developing countries to grow by 4.4 per cent this year, with a likely rise to 5.2 per cent in 2016, and 5.4 per cent in 2017.

This will result in a fourth consecutive year of disappointing economic growth this year, says the report.

"Developing countries were an engine of global growth following the financial crisis, but now they face a more difficult economic environment," said World Bank Group president Jim Yong Kim.

"We'll do all we can to help low- and middle-income countries become more resilient so that they can manage this transition as securely as possible. We believe that countries that invest in people's education and health, improve the business environment, and create jobs through upgrades in infrastructure will emerge much stronger in the years ahead. These kinds of investments will help hundreds of millions of people lift themselves out of poverty,'' he added.

The Global Economic Prospects report 2015 has urged countries to "fasten their seat belts" as they adjust to the challenges.

Developing countries face a series of tough challenges in 2015, including the looming prospect of higher borrowing costs in a new era of low prices for oil and other key commodities.

Kaushik Basu, the World Bank's chief economist, said the US Federal Reserve should hold off on a rate hike until next year to avoid worsening exchange rate volatility and crimping global growth.

In its twice-yearly Global Economic Prospects report, the global development lender predicted the world economy would expand 2.8 per cent this year, below its 3 per cent prediction in January.

"We at the World Bank have just switched on the seat belt sign," Basu said at a press conference in Washington. "We are advising nations, especially emerging economies, to fasten their seat belts."

Basu said lower commodity prices eventually should help global growth, and the World Bank kept its global growth forecasts unchanged for next year and 2017.

It also predicted that India would be the fastest-growing major economy for the first time this year, growing at a rate of 7.5 per cent, up from the previous forecast of 6.4 per cent.

But the World Bank cut its 2015 growth forecast for developing countries to 4.4 per cent, from 4.8 per cent in January, pointing to the drag of expected recessions in Brazil and Russia.

It also lowered the growth outlook for the United States to 2.7 per cent this year, from 3.2 per cent in January, and to 2.8 per cent next year, from a previous forecast of 3 per cent.

The US economy slumped at the beginning of 2015 due in large part to bad winter weather, a strong dollar, port disruptions and deep energy sector spending cuts.

"If I were advising the US Fed, I would recommend that (higher rates) happen next year instead of late this year," due to the mixed economic picture, Basu said, adding that it was his own view rather than that of the World Bank as a whole.

"My own concern is that a relatively early move (in US rates) could cause an exchange rate movement, strengthening of the dollar, which will not be good for the US economy" and have negative repercussions for other countries, he said.