World Bank Sees Stronger Growth as Rich Economies Expand

BY ANNA YUKHANANOV for Reuters

The rosier outlook suggests the world economy is finally breaking free from a long and sluggish recovery after the global financial crisis.

The poverty-fighting institution predicted global gross domestic product will expand 3.2 percent this year, from 2.4 percent in 2013, according to its twice-yearly “Global Economic Prospects.” In the bank’s last forecast in June, it expected global growth to reach 3 percent in 2014.

The bank said the global economy had come to a “turning point,” as fiscal austerity and policy uncertainty no longer weighed as heavily on most richer economies. The bank expected stronger growth in the United States in particular, of 2.8 percent in 2014, from 1.8 percent last year.

“For the first time in five years, there are indications that a self-sustaining recovery has begun among high-income countries – suggesting that they may now join developing countries as a second engine of growth in the global economy,” the bank’s chief economist Kaushik Basu said in the report.

The bank again shaved its forecasts for developing countries, to 5.3 percent for 2014, from the 5.6 percent it predicted in June.

Emerging markets have grown at their slowest pace in a decade for the past two years, after chalking up growth rates of around 7.5 percent before the global financial crisis hit in 2008.

Andrew Burns, the report’s lead author, said frothy growth before the crisis reflected cyclical factors.

“We’re moving into a new phase where developing countries are growing at a rate much closer to their underlying sustainable rate of growth,” he told reporters.

The World Bank on Tuesday raised its forecast for global growth for the first time in three years as advanced economies started to pick up pace, led by the United States.

SMOOTH UNWINDING

As advanced economies strengthen, countries may begin pulling back from the massive monetary stimulus launched at the height of the crisis. The U.S. Federal Reserve has started winding down its monthly asset-purchase plan this month, though it expects to keep interest rates low for at least another year.

The World Bank said it expects rates around the world to inch up gradually, causing minimal disruptions for developing countries as capital inflows slow down.

“Whatever drag this implies for developing country growth is more than offset by the additional export demand due to stronger high-income country growth,” the report said.

However, if rates jump suddenly, countries with high debt levels or large current account deficits such as Thailand and Malaysia would be most vulnerable.

The bank said that while risks to its global outlook, including a sharp rebalancing in China, a protracted recovery in the euro zone, and fiscal policy uncertainty in the United States, have not been eliminated, they have subsided.

Top List of Economically Free Countries of 2013

beckeThe United States came in at number 12. The U.S. was ranked number 6 when President Barack Obama took office in 2009.

Slipping: U.S. Fails to Crack Top 10 List of Economically Free Countries

The economic freedom index, which is jointly published by the Wall Street Journal and the Heritage Foundation, ranks the top 10 countries based on the average of 10 separate measurements, including government spending, fiscal freedom, trade freedom and freedom from corruption.

America’s spot on the 20th annual index is an “unfortunate but foreseeable slide,” said Heritage President and former U.S. Senator Jim DeMint.

“It should stun everyone,” he said, noting that the U.S. has even managed to fall behind Estonia on the index.

America’s place on the index has declined steadily for the past seven years, resulting in its status as “mostly free.” The decline is due mostly to poor showings in “fiscal freedom, business freedom and property rights,” according to the index.

“Fortunately despair will never be part of what we do here at the Heritage Foundation,” DeMint said. “We’re continuing to work on those factors, those inputs, that change the total output of economic growth.”

Hong Kong, Singapore, Australia, Switzerland, New Zealand and Canada, on the other hand, all rank “free.”

Slipping: U.S. Fails to Crack Top 10 List of Economically Free Countries

America’s fall to 12th place comes even as economies in the Asia-Pacific region report slight improvements.

Lastly, the “communist nations North Korea and Cuba brought up the rear of the index. Several war-torn countries, such as Syria and Afghanistan, were not ranked,” the Washington Examinerreported.

Dubai Keen to Become Islamic Economy Capital

Dubai’s proposed Islamic Economy Development Center is expected to advance the emirate’s seven-pillared strategy to establish itself the capital of the Islamic economy within three years.
Sheikh Mohammed bin Rashid Al Maktoum, vice president and prime minister of the UAE, had issued a law for establishing Dubai Islamic Economy Development Center.
The center, which will be chaired by Mohammed Abdullah Al-Gergawi, the UAE minister of cabinet affairs, is aimed at bolstering Dubai’s bid to become a global hub for Islamic finance, encompassing sectors including sukuk and takaful, as it competes with international rivals such as London and Kuala Lumpur.
The center will be equipped with the financial, administrative and legal tools to promote economic activities compatible with Islamic law in Dubai’s goods and financial services sector, as well as the non-financial sector.
It will conduct research and specialist studies to determine the contribution of Shariah-compliant activities to the gross domestic product, and explore how to extend this contribution to boost the economy.
It will also be responsible for building a comprehensive database of such activities. In addition, the center will also launch Islamic economy awards to boost the sector.
In October, Dubai had launched a plan to be the capital of the Islamic economy in three years, predicated on its establishment as an international center for seven economic pillars — Islamic finance, halal industries, halal tourism, the Islamic digital economy, Islamic art and design, Islamic economic standards and certification, and Islamic information and education.
A recent study by Thomson Reuters gives high hope for the center. The report found that the market has a potential value of $6.7 trillion — bigger than all but two of the world’s national economies — the US and China.
The report estimates Muslim consumers’ global expenditure on the media, food and lifestyle sectors, (including cosmetics and tourism, at $1.62 trillion last year. It puts the figure at $2.47 trillion by 2018.
The report also put the value of Islamic financial assets at $1.35 trillion, which is expected to grow 15 to 20 percent per year in core markets. The report also values the potential universe of Islamic banking assets in core markets under optimal conditions at $4.1 trillion.
“The Islamic Economic Development Center will create new products and lines of services to law firms, which specialize in finance structuring. Firms in the UAE, meanwhile, will benefit from new business because of their understanding of Islamic finance products,” says Eli Hyder, managing partner of Bond Lawyers.