The World Bank is not alone in making growth projections for the global growth situation.  News out now maintains a stance of global growth in 2012, but not in Europe as the old continent is set to be in the red this year.  Two key warnings are simply to prepare for more volatility in the years ahead and a warning that developing nations need to reduce their vulnerabilities.

The crux of today’s report is simply, “Increased uncertainty will add to pre-existing headwinds from budget cutting, banking-sector deleveraging and developing country capacity constraints.”  On the second warning, the report shows that developing countries need to reduce vulnerabilities by taking steps to cut short-term debt, cut budget deficits, and return to a more neutral monetary policy.  The secondary note is perhaps where the risks are: “Doing so will provide them with more leeway to loosen policy, should global conditions take a sharp turn for the worse.”

• World Bank projections now show that developing country growth will slow to a relatively weak 5.3% in 2012, but that is expected to rise to 5.9% in 2013 and then up to 6.0% in 2014.
• Growth in high-income countries is expected to be weak.  The current expectations are for 1.4% growth in 2012, followed by 1.9% growth in 2013, and then 2.3% growth in 2014.
• The World Bank now sees GDP in the Euro Area declining by 0.3% in 2012, and the global GDP is being projected at 2.5% growth in 2012, 3.0% growth in 2013, and 3.3% growth in 2014.

Be advised that today’s projection from the World Bank assumes a baseline scenario and not a breakdown situation. What if there is a breakdown in Europe, or what if key BRIC nations end up in a hard landing? The report noted:

• “This baseline scenario remains the most likely outcome. However, should the situation in Europe deteriorate sharply no developing region would be spared. Developing Europe and Central Asia is especially vulnerable because of its close trade and financial ties with high-income Europe, but the world’s poorest countries will also feel the fall out – especially countries that are heavily reliant on remittances, tourism or commodity exports or that have high-levels of short-term debt.”

The sad thing here is rather simple.  China just did a surprise rate cut as its growth metrics look high to the West but they are near recession levels as far as China’s needs are concerned.  The coming fiscal cliff in the United States after the coming election is another area of concern, as are slowing trends in India and Latin America. Here are some other summary points:

• Growth for the East Asia and Pacific region is on a moderately easing trend, with GDP gains for the region dropping to 8.3 percent in 2011 from 9.7 percent in 2010.
• The renewed turmoil in high-income Europe are projected to slow regional GDP growth to 3.3 percent this year, before a modest recovery begins with growth firming to 4.1 and 4.4 percent in each of 2013 and 2014.
• Latin America and the Caribbean region: Regional GDP is expected to decelerate to 3.5 percent in 2012, firming to 4.1 percent and 4 percent in 2013 and 2014.
• Middle East and North Africa region: Regional growth is projected to remain weak at 0.6 percent for 2012… As risky elements fade in importance, growth for the region should rise to 2.2 percent in 2013 and 3.4 percent in 2014.
• Woes of South Asia’s growth are expected to limit regional growth to a relatively modest 6.4 percent in 2012, 6.5 percent in 2013, and 6.7 percent in 2014 (India will see growth rising to 6.9% in 2012-2013, 7.2% in 2013-2014, and 7.4% in 2014-15.
• Sub-Saharan Africa remained robust in 2011 at 4.7% and ex-South Africa the growth in the rest of the region was stronger at 5.6%.  Regional growth is expected to strengthen to 5% in 2012, 5.3% in 2013, and 5.2% in 2014.

There is something else to consider here.  If you tally up many of the other less-influential global regions the math just doesn’t add up to enough of the global growth in monetary terms.  Without growth in the U.S., China, India, and Latin America, there is no possibility for global growth. Imagine if the fiscal cliff hits in the U.S. with sharp tax increases and sharp spending cuts at the start of 2013.  It is hard to imagine that this move would not hit an instant recession button, and if the U.S. heads into the red it is hard to imagine that these World Bank projections for global growth can remain in place.

FULL WORLD BANK REPORT

JON C. OGG

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