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Economy

World Bank forecasts 1.5 percent growth in eurozone for 2017

The World Bank's forecast marks a slight slowdown to last year's projected growth figures for the eurozone. The US and commodity-exporting nations are expected to reap the most benefits in 2017.

The World Bank said on Tuesday it expected the eurozone to grow by 1.5 percent in 2017, a slight deceleration from the 1.6 percent increase in GDP seen last year.

Growth is forecast to further slow down to 1.4 percent in 2018, according to the Global Economic Prospects, a report published bi-annually by the world's leading lending agency.

Despite the fractional reduction in growth, the figures indicate that the eurozone economy is gradually recovering, having endured years of stagnant growth in the wake of the 2008 financial crisis and the subsequent Greek debt crisis.

Global economic growth is expected to pick up slightly with global GDP set to expand at a 2.7 percent annual rate this year - a marked boost to last year's 2.3 percent growth, the worst global performance since the 2008 crisis.

"We are encouraged to see stronger economic prospects on the horizon," World Bank President Jim Yong Kim said.

Strong US growth forecast under Trump - with caveats

Global Economic Prospects projects 2.2 percent growth in the US over the next year, a significant boost from its estimated 1.6 percent growth in 2016. The upturn comes amid a rebound in US manufacturing and investment activity.

The World Bank also projected that the US economy stood to see even greater expansion on the back of incoming President Donald Trump's proposed stimulus plan, should it be enacted. Trump pledged during his campaign to cut taxes, do away with red tape and boost infrastructure spending.

Frankfurt Börse US Wahlen 2016 (Getty Images/AFP/D. Roland)

Markets still can't decide whether Trump will prove to be a blessing or a curse

However, the World Bank was quick to warn of Trump's protectionist proposals to impose high tariffs on goods imported from countries such as Mexico and China. The global lender said that such policies risked starting a trade war, hindering US growth prospects.

"Because of the outsize role the United States plays in the world economy, changes in policy direction may have global ripple effects," World Bank economist Ayhan Kose said. "More expansionary U.S. fiscal policies could lead to stronger growth in the United States and abroad... but changes to trade or other policies could offset those gains." 

However, Kose said one simulation showed that Trump's proposed tax cuts could see the US growth rate increase by three-tenths this year and more than double in 2018. However, the World Bank warned that the Federal Reserve would need to be vigilant to stem any inflationary pressures spurred by the new administration's stimulus spending and tax cuts.

Mixed outlook for emerging markets

Among the biggest winners this year will be commodity exporting countries, the World Bank said. After dramatically slumping in 2015, commodity prices are expected to gradually recover in 2017.

After growing by a barely discernible 0.3 percent last year, commodity exporters should see their economies expand by some 2.1 percent. Russia, Brazil and Argentina are anticipated to start growing again, having all endured crippling recessions last year.

By contrast, commodity-importing emerging markets are forecast to see a slight slowdown in growth by a tenth to 5.6 percent on the back of trade growth and subdued investment gains.

Kose warned that a drop-off in investment was the most pressing issue facing the global economy. While the World Bank has not identified a smoking gun for the cause of the decline in investment, likely factors are: reduced investment into commodity industries and political uncertainty facing a number of developed and emerging economies.

dm/mg (AP, AFP)

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