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Although the major risks to the global economy are similar to those of a year ago, the likelihood that they will materialise has diminished, as has the magnitude of estimated impacts should these events occur. Major downside risks include the loss of access to capital markets by vulnerable euro area countries, lack of agreement on US fiscal policy and the debt ceiling, and commodity price shocks.
In an environment of slow growth and continued volatility, a steady hand is required in developing countries to avoid pro-cyclical policy and to rebuild macro-economic buffers so that authorities can react in the case of new external or domestic shocks.
Despite slow growth in high-income countries, prospects for the developing world remain solid (albeit between 1 and 2 percentage points slower than in the pre-crisis period). In order to regain those earlier faster growth rates, developing countries will need to focus on productivity-enhancing domestic policies, to assure robust growth in the long term.
The World Bank estimates global GDP grew 2.3 per cent in 2012. Growth is expected to remain broadly unchanged at 2.4 per cent growth in 2013, before gradually strengthening to 3.1 per cent in 2014 and 3.3 per cent in 2015.
GDP growth in Europe and Central Asia is estimated to have slowed sharply to 3 per cent in 2012 from 5.5 per cent in 2011 as the region faced significant headwinds, including weak external demand, deleveraging by European banks, summer drought and commodity-price induced inflationary pressures. Growth in the region is projected to rebound to 3.6 per cent in 2013 and 4.3 per cent by 2015. Medium-term prospects for the region will critically depend on progress in addressing external (large current account deficits) and domestic (large fiscal deficit, unemployment, and inflation) imbalances, lack of competitiveness, and structural constraints.