World Bank predicts lower global growth for this year

The World Bank is reducing its forecast for the global economy this year.

In January the agency had predicted that global growth would be 2.9 percent but that has now been reduced to just 2.4 percent.

Commodity-exporting countries have been struggling with low prices for materials. However, recently the price of oil has been rising considerably. 

Commodity-exporting emerging market countries are expected to grow a meager 0.4 percent down from 1.2 percentage points in January.

The Bank predicted that the US economy would grow at just 1.9 percent down from 2.4 percent in 2015. The eurozone is expected to grow at the same rate as last year a tepid 1.6 percent. Japan is struggling as its economy was expected to grow by just 0.5 percent down from 1.3 percent in January. China's outlook is unchanged at 6.7 percent.

Commodity-importing emergency market countries are doing better but the lower energy prices and for other materials is so far not increasing growth. In January the group were predicted to have a growth rate of these countries was 5.9 but is now 5.8.

World Bank Chief economist, Kaushi Basu, said:"As advanced economies struggle to gain traction, most economies in South and East Asia are growing solidly, as are commodity-importing emerging economies around the world." He warned that in several emerging and developing economies there was a rapid rise in private debt. This could pose a risk to growth especially should non-performing bank loans rise.

One of the brighter spots is India where the growth rate is to hold steady at 7.6 per cent. Other countries such as Russia and Brazil are likely to have deeper recessions than forecast in January. The anemic growth prospects creates mounting risks including a further slowdown in major emerging markets.

The Bank attributes the lower growth expectations to the sluggish growth in advanced countries, coupled with low commodity prices, weak global trade, and smaller capital flows.

World Bank Group President, Jim Yong Kim, said: "This sluggish growth underscores why it’s critically important for countries to pursue policies that will boost economic growth and improve the lives of those living in extreme poverty.

Economic growth remains the most important driver of poverty reduction, and that’s why we’re very concerned that growth is slowing sharply in commodity-exporting developing countries due to depressed commodity prices.” In spite of the reduced growth expectations US stock market indices are near or at record highs.

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Parliament in Finland debates leaving the Euro zone.

The Finnish parliament is debating whether Finland should leave the Eurozone after 53,000 people signed a petition asking that parliament debate the issue.

The petition was filed by MEP Paavo Vayrynen who said:”We should revive our economy by leaving the euro zone and reinstating our own currency (with a floating exchange rate). This will restore our competitiveness.” His main argument for leaving the euro is the fear that Finland might lose economic and political independence if it remains in the eurozone. The petition demands a referendum but only if the parliament supports it. The petition is a sign of growing frustration with poor economic performance, rising unemployment, and an outlook for weak growth. All of this is going on alongside a government austerity program. So far no political group has proposed Finland exit the Eurozone or a Fixit as it is called. However, some euro-sceptic parliamentarians claim that the lack of an independent foreign policy is a problem. Prior to entering the eurozone, Finland would reduce the value of its currency the marrka in order to stimulate export growth when it appeared necessary. The eurosceptics say that Finland should have had a referendum on the issue in 1998 when the euro was adopted. Sweden and Denmark voted against adopting the euro.

Simon Elo. an MP from the co-ruling euro-sceptic Finns Party said: "The euro is too cheap for Germany and too expensive for the rest of Europe, it does not fulfill requirements of an optimal currency union." Finland's economy managed just 0.5 percent growth last year and this was after three years during which it contracted. High labor costs and a recession in Russia are among the problems facing Finland.

Since Finland cannot devalue its currency to improve its competitiveness, it has adopted a controversial plan of "internal devaluation" including longer working hours to reduce unit production costs. Finance minister, Alexander Stubb, says the government is committed to the euro and that a "Fixit" would have more harms than benefits:"Our international position would probably weaken, our currency rate would become unsustainable... our country risk would be high and we would be likely driven into a situation where interest rates would increase." A December poll showed that 54 percent of Finns wanted to remain in the eurozone while 31 percent wanted to leave. Forty-four percent thought that Finland would do better outside the eurozone.

The petition still needs to pass through several stages in the Finnish parliament before it results in a plenary vote and a possible referendum. The next stage will be discussion with a parliamentary committee.

In the UK leaving the eurozone or a Brexit is a hot topic. Britons go to the polls on June 23 to vote in a referendum to decide whether to leave the 28-member zone or to stay in it.

IMF and EU at odds over need for debt relief in Greece

The rift between the IMF and the Euro zone countries became clear when the IMF insisted on releasing a document arguing that without substantial debt relief, Greece could not manage its debt repayments.

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Euro zone countries tried to delay release of the document until the final negotiations for a bailout deal with Greece had finished but to no avail. The US virtually controls the IMF and no doubt demanded the release specifically to influence the outcome. The document also suggested that debt relief might require a substantial write off or "haircut" of loans.

As I see it, the plan of Finance Minister Woflgang Schaeuble of Germany was to present two options to Greece, a Grexit with some sweeteners or a completely humiliating, painful, bailout plan that originally required transferring over 50 billion in Greek assets to a Luxembourg firm to be privatized. Tsipras managed to transfer the fund to Athens with Greek control but under Troika supervision. This will achieve exactly the same result — privatization of any remaining Greek national assets at fire sale prices — but it looks better when Greeks help out the process. Greece was required to erase all its red lines and pass legislation immediately reducing pensions, retirement age, and increasing taxes often on those least able to pay. Schaeuble no doubt believes that the bailout terms will produce an unsustainable debt level resulting in default and a Grexit, what he has wanted all along. There was mention of discussion later on of debt restructuring in the bailout agreement, but specific warning that there would be no haircuts and that Greece must fulfill all its debt obligations.

Now the IMF has come out with an analysis of the EU offer to Greece that warns Eurogroup ministers that the Greek public debt is "highly unsustainable." It urged debt relief on a scale "well beyond what has been under consideration to date." Recognizing the Eurogroup reluctance to allow haircuts, the IMF suggests Greece should be given 30 years to repay all its European debts and extension of maturity of other debts.

The Eurozone governments will contribute between 40 and 50 billion euros to a new bailout, but the IMF is also expected to contribute another major amount. Funds will also be produced by sell-off of state assets. Greece will also have renewed access to borrowing from financial markets. The IMF said it will not participate unless there is a clear plan. No doubt this meant to refer in part to a clear plan for restructuring that will make debt sustainable. Greece already has missed two deadlines for paying 1.6 billion euros on IMF loans. According to BBC correspondent Chris Morris, the IMF report was written before the bailout agreement was reached in the early hours of Monday morning. The report was shared with Eurozone leaders in advance.

The changes recommended by the IMF might foil Schaeuble's plan for a bailout system that is unsustainable and force a Grexit. However, the IMF suggestions may not be accepted. Some countries, such as France, might support the IMF suggestions but Germany may by now be irritated at the IMF interference in the negotiations by the Eurogroup and see the whole affair as an attempt by the US to trim Germany's influence in the EU and also ensure there is no Grexit. The U.S. may not only see a Grexit as destabilizing but may also be concerned that a Grexit would draw Greece more into the Russian orbit and out of NATO. Within Germany, the Netherlands, and certainly Finland a Grexit plan would no doubt find majority support. Even should a restructuring of the debt be possible it will do little to lift the austerity measures, and nothing to prevent the alienation of Greek resources, and hence would do little or nothing to improve the life of the average Greek.