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While you were sleeping: World Bank downgrades outlook

Thursday 12th June 2014

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Wall Street fell with its upward momentum at least temporarily derailed by a bleaker global and US economic outlook from the World Bank and an unexpected defeat for a key member of the Republican Party’s leadership.

The World Bank predicted the global economy will grow 2.8 percent this year, down from a forecast of 3.2 percent in January, because of poor weather in the US, financial market turbulence, and the Ukraine crisis. It kept its global growth forecast for 2015 at 3.4 percent.

“The global economic recovery remains on track, with the acceleration in growth underpinned by firming output and demand in high income countries,” the World Bank said in its Global Economic Prospects report. “The economic cycle in most developing economies is also strengthening, in part due to support from stronger high income demand, although growth remains slower than during the pre-crisis boom period.”

The World Bank also downgraded its forecast for the US economy, now expected to expand 2.1 percent this year, down from a previous forecast of 2.8 percent.

"The World Bank cutting estimates for global GDP got everybody's attention in an environment where people are looking for a reason to take stocks down a little bit," Art Hogan, chief market strategist at Wunderlich Securities in New York, told Reuters.

In the final hour of trading in New York, the Dow Jones Industrial Average shed 0.67 percent after closing at a record high on Tuesday. The Standard & Poor’s 500 Index dropped 0.51 percent, while the Nasdaq Composite Index fell 0.43 percent.

Shares of Boeing dropped, last down 2.4 percent for the biggest decliner in the Dow. Eric Cantor’s loss threatens congressional reauthorisation of low-cost lending that benefits the world’s largest planemaker, according to Bloomberg News. Cantor lost his bid to represent the Republicans in November’s federal elections to an unknown member of the right-wing Tea Party. The outcome is seen as a rebuke to efforts to bridge the US Congressional deadlock.

In Europe, the Stoxx 600 Index finished the session with a 0.6 percent drop from the previous close. The UK’s FTSE 100 fell 0.5 percent, Germany’s DAX slid 0.8 percent, while France’s CAC 40 dropped 0.9 percent.

Shares of Lufthansa plunged 14 percent after it downgraded its outlook for this year and next.

“Reason for lowering the forecast is a weaker than expected revenue development in the passenger and freight businesses as well as negative result impacts from strikes and the devaluation of the Venezuelan Bolivar,” Lufthansa said in a statement.

Bad news seemed the theme for the day for the aviation industry. Shares of Airbus dropped 3.1 percent after Emirates cancelled an US$16 billion order for A350s.

Airbus downplayed the impact.

"It is not good news commercially but not bad news financially," Airbus sales chief John Leahy told reporters, adding the rival Boeing 787 had suffered more cancellations, Reuters reported. "There is certainly going to be no hole in production.

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