World economy to grow 2.8% this year and 3.3% next year

While growth in the world economy (global economy) has picked up in advanced economies, the opposite has occurred in emerging markets.

The findings come from the Rhine-Westphalia Institute for Economic Research (Rheinisch-Westfälisches Institut für Wirtschaftsforschung), or RWI, in Germany.

Emerging economies have seen sizable capital outflows as investors predict the U.S. Federal Reserve will start scaling back its $85 billion per month stimulus program.

This has resulted in significant deprecations in the currencies of emerging economies.

Even though over the short-term GDP growth rates in emerging economies will be substantially greater than in the most advanced nations, the bulk of the growth in the world economy will be driven be the latter.

RWI believes that fiscal stance in the advanced economies will become less restrictive, but compared to the last 20 years will still be relatively tight.

As confidence in the corporate sector improves and investment delays of recent years build up, fixed capital formation is estimated to contribute to growth.

The much slower growth rates recently seen in emerging economies are not expected to last long, RWI believes they will soon pick up again.

Overall, RWI expects the world economy to grow by 2.8% in 2013 and 3.3% in 2014.

The world economy is changing

The world economy is undergoing some fundamental changes. The Eurozone will undergo some institutional reforms that will probably make it less fragile and make the currency union more solid.

China now has a new growth model.

RWI writes “Finally, central banks will sooner or later have to scale back on their ultra-loose monetary police. It is not guaranteed that these shifts will go smoothly without causing major disruptions.”

Key Data of the International Forecast
2012 to 2014; changes over the previous year in %

2012 2013f 2014f
Gross Domestic Product1
Euro area -0.6 -0.4 0.9
United Kingdom 0.2 1.3 2.0
USA 2.8 1.7 2.7
Japan 2.0 2.1 1.9
Advanced Economies 1.3 1.0 1.9
Consumer prices
Euro area 2.5 1.6 1.5
United Kingdom 2.8 2.6 2.5
USA 2.1 1.7 2.3
Japan 0.0 0.1 1.8
Advanced Economies 1.9 1.4 1.9
World Output2
based on Purchasing Power Parities 3.0 2.8 3.3
based on market exchange rates 2.4 2.2 2.8
World trade3 2.1 2.0 5.3
Oil Price (Brent, US-Dollar/b)4 112.0 109.5 113.2
Exchange Rate (US-Dollar/Euro)4 1.29 1.32 1.32