The World Bank has stated that despite weak growth forecasts countries should not be tempted by the quick fix of artificially stimulating their economies this year, and should instead invest in developing the backbone drivers of growth. New World Bank President Jim Yong Kim said: “The economic recovery remains fragile and uncertain, clouding the prospect for rapid improvement and a return to more robust economic growth.” He was speaking in response to the declining growth rates of large emerging economies like Brazil, India and Russia and the Japanese government announced a Y10.3tn stimulus package to help reawaken its economy.
The World Bank maintains that even as the world emerges from the four years of economic crisis, countries will still struggle to grow at pre-2008 levels. In the biannual Global Economic Prospects report the organisation said that “the majority of developing countries are operating at or close to full capacity.” It forecast that global economic growth would rise modestly from 2.3 percent in 2012 to 2.4 percent this year.
The World Bank has also expressed some concern over the persistent pattern of growth in developing countries being offset by weak demand and growth from high income countries, a trend they say will endure until 2015. According to the report, emerging economies will grow 5.5 percent, while higher income countries will only expand 1.3 percent.
“Developing countries’ growth is generating through their own activities and refutes the view that it is just a reflection of a strong demand in high income countries,” Andrew Burns, lead author of the report said.
The analysis contained in the document is that the countries still face persistent risk of a eurozone collapse, and that the US might not find a solution to its budget issues in the coming months, as well as high fuel and food prices, but that these risks and the slower growth do not warrant more artificial stimulus packages. “Additional demand stimulus could be counterproductive- raising indebtedness and inflation without significant pay-off in terms of additional growth,” read the report.