Economy Watch: World Bank Lowers Global Growth Predictions

By Dees Stribling, Contributing Editor

Last week the World Bank, in its Global Economic Prospects, lowered its forecast for world economic growth in 2014. All together, the organization predicts that the world economy will expand by 2.8 percent this year, but strengthening by 3.4 percent and 3.5 percent in 2015 and 2016, respectively. In January, it predicted 3.2 percent growth for this year.

Despite Q1 weakness in the United States, the recovery in the world’s high-income countries is gaining steam. These economies are expected to grow by 1.9 percent in 2014, accelerating to 2.4 percent in 2015 and 2.5 percent in 2016. The euro zone, so long in the doldrums, is on target to grow by 1.1 percent this year, while the U.S. economy—which actually contracted in the first quarter due to severe weather—is expected to grow by 2.1 percent this year (though that’s down from the World Bank’s previous forecast of 2.8 percent for the year).

The bank has lowered its forecasts for developing countries, and is now eyeing growth of 4.8 percent this year for those parts of the world, down from its January estimate of 5.3 percent. Still, it’s expecting stronger growth in the developing world in 2015 and 2016, to 5.4 percent and 5.5 percent respectively. China, for instance, is expected to grow by 7.6 percent this year, unless a hard landing occurs, the reverberations of which would be widely felt.

Wholesale prices muted in May

The Producer Price Index for “final demand” fell 0.2 percent in May, the Bureau of Labor Statistics reported on Friday. The monthly decline in wholesale prices followed increases of 0.6 percent in April and 0.5 percent in March, pointing to a cooling in inflation. Final demand includes goods, services and construction that are sold for personal consumption, capital investment, government purchases and export.

In May, a 1.1 percent decrease in margins for machinery and equipment wholesaling accounted for about half of the decline in prices for final demand services, the BLS said. Also, the indexes for apparel, footwear and accessories retailing; health, beauty care and optical goods retailing; food wholesaling; and consumer loans also moved lower.

In May, wholesale gasoline prices fell 0.9 percent, accounting for a good chunk of the decline in the final demand goods index. Prices for basic organic chemicals; pork; pharmaceutical preparations; residential electric power; and cheese also moved down. On the other hand, the diesel fuel index rose 3.9 percent in May. Wholesale prices for processed poultry and cigarettes also advanced.

Consumer sentiment down in Mid-June

Consumer sentiment edged down to 81.2 in mid-June, compared with 81.9 at the end of May, according to the University of Michigan on Friday. Current conditions were up 1 point, but consumer expectations dragged things down by losing 1.5 points since the beginning of the month.

Wall Street bounced back a bit on Friday, with the Dow Jones Industrial Average gaining 41.55 points, or 0.25 percent. The S&P 500 advanced 0.31 percent and the Nasdaq was up 0.3 percent.