The World Bank revised the global growth forecasts upward due to the need for less austerity in developed markets. A growth expansion of 3.2 percent is seen this years opposed to the original projection of 2.4 percent made in June 2013. The World Bank fprecasts the eurozone getting better and the United States leading the developed nations in expansion with growth of 2.8 percent.
In the bank’s Global Economic Prospects (GEP) report, a growth in output among high-income nations shows a “significant shift” from prior years. The report also mentioned that import demand “should help compensate for the inevitable tightening of global financial conditions that will arise as monetary policy in high-income economies is normalized.
Unfortunately, the World Bank sees uncertainty in the emerging markets as monetary stimulus is reigned in. This will likely increase interest rates, which will negatively impact these countries. Investors, most likely, will limit their risk asset exposure and allocate more capital to treasuries. Emerging markets seen harsh effects when the Federal Reserve first discussed their unwinding of stimulus; some markets have recovered, some have not. The GEP report’s lead author, Andrew Burns, said ““if interest rates rise too rapidly, capital flows to developing countries could fall by 50 percent or more for several months — potentially provoking a crisis in some of the more vulnerable economies.”