2nd LD Writethru: World Bank lowers 2015 global growth forecast to 3 percent

The World Bank on Tuesday cut its global growth forecast for 2015 and lowered the estimate for 2014, as several headwinds mitigate the effects of an improving U. S. economy and plunging oil prices.

In its latest flagship report Global Economic Prospects, the World Bank projected a growth rate of 3 percent for the global economy in 2015, down 0.4 percentage point from its June forecast. That followed an estimated 2.6 percent growth in 2014.

Ayhan Kose, director of Development Prospects at the World Bank, described the world economy as "disappointments we saw in 2014, divergences we are observing around, and expectations going forward."

The weaker-than-expected growth in 2014 was partly due to a string of disappointing growth outcomes in the EU area, Japan, Latin America, and emerging Europe, especially Russia, Kose said.

Despite disappointing growth in 2014, the global economy will continue improving in 2015, boosted in part by soft oil prices, a strong U.S. economy, continued low global interest rates, and receding domestic headwinds in several large emerging markets, said the global development lender.

However, the Washington-based agency warned the growth will remain under downside risks, such as persistently weak global trade, possibility of financial market volatility as interest rates in major economies rise on varying timelines, low oil prices ' straining impact on oil-producing countries, and the risk of a prolonged period of stagnation or deflation in the euro area or Japan.

Underneath the fragile global recovery lie increasing divergent trends, said the bank. Recovery in the United States and Britain is gaining momentum while the euro area and Japan lag behind as the fallout of the financial crisis linger. China is still growing at a robust pace, but the pace slows down.

It forecast the growth in the United States to accelerate to 3. 2 percent in 2015 from 2.4 percent in 2014, and then moderate to 3 percent and 2.4 percent in 2016 and 2017, respectively.

Chinese economy is expected to grow 7.1 percent in 2015, lower than 7.4 percent in 2014. The growth will further slow to 7 percent in 2016 and 6.9 percent in 2017, as the country's structural reforms, such as a gradual withdrawal of fiscal stimulus and continued prudential measures to slow non-bank credit expansion, will weigh down on the growth.

Suffering protracted low inflation, the euro area will grow at a sluggish rate of 1.1 percent in 2015, higher than 0.8 percent in 2014. Its growth will rise to 1.6 percent in 2016 and 2017. In Japan, growth will be 0.2 percent in 2014 and then rise to 1.2 percent in 2015 and 1.6 percent in 2016.

Although the growth is disappointing, there are some silver linings behind the clouds, said Kaushik Basu, World Bank chief economist and senior vice president.

"The lower oil price, which is expected to persist through 2015, is lowering inflation worldwide and is likely to delay interest rate hikes in rich countries. This creates a window of opportunity for oil importing countries, such as China and India," Basu said.

The World Bank also suggested nations use this window to usher in fiscal and structural reforms, which can boost long-run growth and inclusive development. Endite