Global economy grows on 'two engines': World Bank chief

The global economy is poised to gain momentum this year with "two engines" of developing and developed countries working simultaneously, World Bank Group (WBG) President Jim Yong Kim said in a recent exclusive interview with Xinhua.

Developing countries, he added, need to use the time window of a smooth tapering of U.S. monetary stimulus policy to facilitate domestic structural reforms,

BETTER OVERALL PICTURE

"This is the first time in many years we are seeing Japan, the United States and the euro area all growing at the same time. This is very good news for the world," he told Xinhua at the WBG headquarters.

The global gross domestic product (GDP) is estimated to expand 3.2 percent this year, up from 2.4 percent in 2013, with growth picking up speed in developing countries and high-income countries, the WBG predicted earlier this month in its flagship Global Economic Prospects report.

"It looks like in all of the regions, both high-income countries and developing countries, we are seeing an uptick," commented the WBG chief, adding that the overall global growth picture looks "very good" despite some downside risks.

"There is much more to be done. Many countries still have many structural reforms that they are continuing to work with. We are still watching very closely the banking union in the euro zone. The banking union is very important to accelerate growth even further," he said.

High debt-to-GDP ratios and high unemployment rates for young people in some European countries showed that some fundamentals need improvement, as these countries have much to do in terms of structural reforms to solve those problems, Kim said.

The growth in high-income countries has been beneficial to the developing countries, but the unwinding of unconventional monetary policies in developed countries may bring some challenges for emerging markets, noted Kim, adding that "our hope though is that the unwinding will be gradual and happen in a smooth fashion."

"Our concern of course is that something will happen and interest rates will go up quickly. And at that point, we think the capital inflows to developing countries can decrease as much as 50 percent. If that happens, that will not be good for emerging market economies," Kim said.

Addressing economic fundamentals, keeping an eye on maintaining stable macroeconomic policy and using the "small window" to adopt various types of structural reforms, including improving their business environments, can help developing countries to cope with the impact of the U.S. Federal Reserve's tapering of its third round of quantitative easing program, Kim suggested.

REDUCE INEQUALITY, SOLUTIONS BANK

This year's Davos is going to be especially interesting, as the issue of inequality now has become everyone's concern that needs to be tackled, Kim said prior to participating in the annual meeting of the World Economic Forum (WEF) in the Swiss city of Davos.

"A good part of the reason for moving toward the Millennium Development Goals in 2000 is we were becoming increasingly conscious about inequality. Inequality has just gotten worse since we started the Millennium Development Goals movement. What we hope to be discussed in Davos is there are concrete things that countries and global community can do to both boost growth and reduce inequality. There are ways to do them both at the same time," he said.

"If you are really serious in tackling income inequality, you have to measure, you have to have data. The World Bank Group has committed itself to measuring the income group at the bottom 40 percent, and comparing that to growth of the country as a whole. It's a very good indicator of how the poor are doing relative to the rest of the society," he added.

"We have got to find out what are those investments that will lead to the development of infrastructure, the development of the kind of industries that would both grow the economy and reduce inequality. The jobs for young people, jobs for women, jobs for the poor," said Kim.

The third element of tackling inequality is investing in human beings, including health, education and social protection programs, said Kim, a former public health specialist, who is scheduled to visit Myanmar after his Davos trip to discuss with the Asian nation's policymakers on health and energy issues.

The former president of Dartmouth College said he is endeavoring to fundamentally reshaping the Washington-based WBG to build it into a "solutions bank" to provide best evidence-based knowledge on water, roads, health and education to clients anywhere in the world instantaneously.

When countries have problems, they should come to the WBG and the bank will "help them find the right solutions" and share best global practices and food for thought with them, argued Kim, adding that at the same time "we need to be as efficient and lean as we can possibly be to deliver on our mission."

ENCOURAGING CHINA SIGN

"In my trip to China, I have had the chance to meet with the top leaders. I'm convinced that their commitment to reform is very strong. This is an administration that understands the global economy, that understands what is going to take to make China more competitive, and that understands what is going to take to transform the Chinese economy to one that focuses more on services for example, the knowledge economy, than one that focuses on exports and investment," said Kim, who paid his latest visit to China in September.

The understanding that investment rates are high right now is very clear in China. The encouraging thing to hear is the recent round of reforms including making the market to determine the distribution of resources and the Shanghai Free Trade Zone, he said.

"Reforms in land, labor and finance are major issues for the Chinese government. But the movements we have seen in terms of the commitment to reforms have been encouraging for everybody," he added.