Global economy grows on 'two engines': World Bank chief

The global economy is poised to gain momentum this year with "two engines" of developing and developed countries working simultaneously, World Bank Group (WBG) President Jim Yong Kim said. [Photo / Xinhua]

WASHINGTON - The global economy is poised to gain momentum this year with "two engines" of developing and developed countries working simultaneously, World Bank Group (WBG) President Jim Yong Kim said in a recent exclusive interview with Xinhua.

Developing countries, he added, need to use the time window of a smooth tapering of US monetary stimulus policy to facilitate domestic structural reforms,

Better overall picture

"This is the first time in many years we are seeing Japan, the United States and the euro area all growing at the same time. This is very good news for the world," he told Xinhua at the WBG headquarters.

The global gross domestic product (GDP) is estimated to expand 3.2 percent this year, up from 2.4 percent in 2013, with growth picking up speed in developing countries and high-income countries, the WBG predicted earlier this month in its flagship Global Economic Prospects report.

"It looks like in all of the regions, both high-income countries and developing countries, we are seeing an uptick," commented the WBG chief, adding that the overall global growth picture looks "very good" despite some downside risks.

"There is much more to be done. Many countries still have many structural reforms that they are continuing to work with. We are still watching very closely the banking union in the euro zone. The banking union is very important to accelerate growth even further," he said.

High debt-to-GDP ratios and high unemployment rates for young people in some European countries showed that some fundamentals need improvement, as these countries have much to do in terms of structural reforms to solve those problems, Kim said.

The growth in high-income countries has been beneficial to the developing countries, but the unwinding of unconventional monetary policies in developed countries may bring some challenges for emerging markets, noted Kim, adding that "our hope though is that the unwinding will be gradual and happen in a smooth fashion."

"Our concern of course is that something will happen and interest rates will go up quickly. And at that point, we think the capital inflows to developing countries can decrease as much as 50 percent. If that happens, that will not be good for emerging market economies," Kim said.

Addressing economic fundamentals, keeping an eye on maintaining stable macroeconomic policy and using the "small window" to adopt various types of structural reforms, including improving their business environments, can help developing countries to cope with the impact of the US Federal Reserve's tapering of its third round of quantitative easing program, Kim suggested.