The State of the Global Economy
[Based on the opening remarks made at the Chief Economists’ Roundtable on “Growth and Inclusion in Turbulent Times”]
It is time for the annual Spring Meetings. Many of the world’s finance and development ministers, along with business and civil society leaders, are here is Washington and have been meeting with us at the World Bank this week to discuss what we can do to rise up to these challenging times. Most conversations have come to land on two important questions, namely: What is happening around the world in different regions? And: what can we do to stem the slowdown and disunity around the right policy way ahead?
The U.S. Federal Reserve has been letting the world know for a while that it will soon embark in an interest rate tightening cycle, after years of leaving policy rates near zero to stimulate growth after a devastating financial crisis and recession.
But despite the careful buildup, there is a possibility that the Fed tightening cycle could at some point rattle financial markets, with potentially difficult consequences for the most vulnerable emerging and frontier markets, a Policy Research Note from the World Bank’s Development Prospects Group concludes.
|Renewed concerns earlier in the week about the Greek bail-out plan and the possibility of a credit rating downgrade for several European economies drove borrowing costs up. The European Central Bank’s (ECB) announcement on Thursday to defend the Euro has helped ease concerns somewhat.|
- Egypt, Arab Republic of
- South Africa
- East Asia and Pacific
- Europe and Central Asia
- Latin America & Caribbean
- Middle East and North Africa
- Financial Sector
- Macroeconomics and Economic Growth
- tourism in devloping countries
- interest rates
- Euro area banking crisis
As Greece’s debt crisis escalated, analysts and the media have so far mostly focused on possible spillovers to countries in Southwestern Europe and on weakening of the euro.
It is striking that for weeks, financial markets have not been exceptionally worried about strong contagion to emerging economies, even though there are vulnerabilities in emerging Eastern Europe and European banks are heavily invested in emerging economies all around the world.