INFLATION WARNING: World Bank warns Western countries vulnerable to rising interest rates

Wednesday, January 10, 2018
By Paul Martin

BETTER-than-expected economic growth of Western countries could lead to high interest rates, the World Bank has warned.

Wed, Jan 10, 2018

As most of the affluent West is running at maximum capacity, the vulnerability for the area to be hit with high inflation is ever growing.

Franziska Ohnsorge, lead economist at the World Bank, said: “There could be faster than expected inflation that would mean faster than expected interest rate hikes.”

Mrs Ohnsorge added current stock market levels are similar to those seen before the Wall Street Crash of 1929.

The Bank has revised its 2018 forecast for the global economy due to a better-than-expected performance in the US, China, the eurozone and Japan.

The World Bank’s half-yearly assessment stated a recovery in manufacturing, investment and trade would lead to global growth of 3.1 percent this year, compared to 2.9 percent of last June.

It believes this acceleration will be short-lived unless governments implement structural reforms to raise long-term growth potential.

The eurozone has given the Bank a huge positive surprise as its growth rate in 2017 was upgraded from 0.7 percent to 2.4 percent.

The US has had smaller upgrades but upgrades nonetheless from 2.1 percent to 2.3 percent in 2017. Japan’s estimates rose from 0.2 percent to 1.7 percent in 2017 and by 0.3 percent to 1.3 percent in 2018.

The only leading developing economy which did not perform as strongly as the Bank predicted was India.

The country experienced growths of 6.7 percent in 2017 and 7.3 percent in 2018 showing decreases of 0.5 percent and 0.2 percent respectively.

China, Russia and Brazil have all been given growth upgrades. China’s expansion in 2017 is now put at 6.8 percent, which is up 0.3 percent on last June’s estimate.

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