The World Bank raises global growth forecast to 3.2% as the IMF believes that China’s debts at 45% of GDP are manageable

Jan 15 • Mind The Gap • 1709 Views • Comments Off on The World Bank raises global growth forecast to 3.2% as the IMF believes that China’s debts at 45% of GDP are manageable

shutterstock_135641615The World Bank has raised its global growth forecast in a report late on Tuesday to 3.2 percent this year from a June estimate of 3 percent. The Washington-based lender maintained its projection for the U.S. economy to expand by 2.8 percent, a one percentage point acceleration from 2013. The forecast for the richest nations was raised to 2.2 percent from 2 percent. Part of the increase reflects improvement in the 18-country euro area, with the U.S. ahead of its major developed peers, growing twice as fast as Japan. The World Bank also predicted that China’s economic growth will slow. It sees GDP growth ‘flat’ at +7.7% this year in China, slowing to 7.5% in 2015 and 2016. It cautions:

The region is vulnerable to risks of disorderly unwinding in Chinese investment and abrupt tightening in global financing conditions. Commodity exporters are also vulnerable to sharper than expected declines in commodity prices.

 Kaushik Basu, its chief economist, declared:

Global economic indicators show improvement. But one does not have to be especially astute to see there are dangers that lurk beneath the surface. The Euro Area is out of recession but per capita incomes are still declining in several countries.

We expect developing country growth to rise above 5 percent in 2014, with some countries doing considerably better, with Angola at 8 percent, China 7.7 percent, and India at 6.2 percent. But it is important to avoid policy stasis so that the green shoots don’t turn into brown stubble.

In Strasbourg, the Greek prime minister has been addressing European MEPs whilst outlining his priorities for the country’s six-month EU presidency which begins this month. Samaras declared:

We have pulled off the biggest reduction in debt without suffering bankruptcy. Eighteen months ago our country was on the brink of catastrophe and many thought we would leave the Eurozone and the Eurozone would disintegrate, but we have proved that Europe could hold its own and come through.

Moderate growth of the German economy in 2013

On the whole, the German economy turned out to be stable on an annual average in 2013. The price-adjusted gross domestic product (GDP) was by 0.4% higher than in the previous year. This is the result of the first, provisional calculations of the Federal Statistical Office (Destatis). In the previous two years, the GDP grew more strongly (by 0.7% in 2012 and by even 3.3% in 2011).

Obviously, the German economy suffered from the continuing recession in some European countries and from restrained growth of the global economy.

Fiscal Vulnerabilities and Risks from Local Government Finance in China – IMF

China has weathered the global financial crisis better than most, mainly because the government quickly implemented a large stimulus package. This package succeeded in offsetting, at least partly, the negative effects on China from the sharp contraction in advanced economy growth. The magnitude of the stimulus, however, is not apparent in the headline fiscal statistics, which show only a modest increase in the 2009 deficit. Instead, much of the stimulus took place through an expansion in credit, including financing for off-budget spending by local governments. The results also show that the augmented fiscal deficit and debt are both considerably higher than the headline government data suggest. Nonetheless, at around 45 percent of GDP, the augmented debt is still at a manageable level.

Market snapshot at 10:15 am UK time

The ASX 200 has closed up 0.64%, the CSI 300 closed down 0.18%, the Hang Seng up 0.49%, and the Nikkei index closed up 2.50%. The euro STOXX is currently up 0.55%, the CAC up 0.58%, the DAX up 0.92% and the UK FTSE is up 0.43%.

Looking towards the New York open the DJIA equity index future is up 0.26%, the SPX future is up 0.21% and the NASDAQ future is up 0.29%. NYMEX WTI oil is up 0.13% at $92.71 per barrel, NYMEX nat gas is down 0.18% at $4.36 per therm. COMEX gold is down 0.48% at $1239.40 per ounce, with silver down 0.92% on COMEX at $20.10 per ounce.

Forex focus

The dollar advanced 0.3 percent to $1.3637 early in the London session after touching $1.3699 on Tuesday, the weakest level seen since Jan. 2nd. It rose 0.2 percent to 104.40 yen. Japan’s currency advanced 0.1 percent to 142.38 per euro.

The Dollar Spot Index climbed 0.3 percent to 1,027.77 following a 0.4 percent jump Tuesday, the most since Dec. 18th. The gauge measures the greenback’s value against its 10 major peers, including the Korean won, Mexican peso and Brazilian real.

The dollar climbed versus 15 of 16 major peers, rebounding from its two-week low versus the euro, before the Federal Reserve releases its Beige Book business survey today. The Australian dollar slid 0.5 percent to 89.20 U.S. cents, set for its steepest two-day slide since Dec.12th, before data which is published tomorrow forecast to show unemployment held at a four-year high. The kiwi fell 0.5 percent to 83.41 U.S. cents.

The pound fell by 0.2 percent to $1.6401 early in London’s session after strengthening by 0.4 percent yesterday, the biggest advance since Dec. 27th. Sterling traded at 83.16 pence per euro. The pound declined versus the dollar, following its biggest gain in more than two weeks made yesterday, before the Bank of England Governor Mark Carney testifies to a U.K. select committee on financial stability. U.K. gilts have dropped 1.8 percent in the 12 months through to yesterday. Treasuries have declined 2.3 percent, whilst German securities have returned less than 0.1 percent.

Bonds

Benchmark USA 10-year yields were little changed at 2.87 percent early in London’s trading session. The price of the 2.75 percent note due in November 2023 was 98 31/32. Treasuries are having their best start to a year since 2010.
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