Global Economic Prospects 2011

Source: Daily Times

Date: January 13, 2011

Most developing countries manage to steer out of crisis

WB sees steady global growth ahead

 ISLAMABAD: The world economy is moving from a post-crisis bounce-back phase of recovery to slower but still solid growth this year and next — with developing countries contributing almost half of global growth, says the World Bank’s (WB) latest Global Economic Prospects (GEP) 2011.

GEP 2011 released on Wednesday stated that the WB estimates that global GDP, which expanded by 3.9% in 2010, will slow to 3.3% in 2011, before it reaches 3.6% in 2012. Developing countries are expected to grow 7% in 2010, 6% in 2011 and 6.1% in 2012. They will continue to outstrip growth in high-income countries, which is projected at 2.8% in 2010, 2.4% in 2011 and 2.7% in 2012.

In most developing countries, GDP has regained levels that would have prevailed had there been no boom-bust cycle. While steady growth is projected through 2012, the recovery in several economies in emerging Europe and Central Asia and in some high-income countries is tentative. Without corrective domestic policies, high household debt and unemployment, and weak housing and banking sectors are likely to mute the recovery.

“On the upside, strong developing-country domestic demand growth is leading the world economy, yet persistent financial sector problems in some high-income countries are still a threat to growth and require urgent policy actions,” said Justin Yifu Lin, the WB’s chief economist and senior vice president for development economics.

Net international equity and bond flows to developing countries rose sharply in 2010, rising by 42% and 30% respectively, with nine countries receiving the bulk of the increase in inflows. Foreign direct investment to developing countries rose a more modest 16% in 2010, reaching $410 billion after falling 40% in 2009. An important part of the rebound is due to rising South-South investments, particularly originating in Asia.

“The pickup in international capital flows reinforced the recovery in most developing countries,” said Hans Timmer, director of development prospects at the WB. 

“However, heavy inflows to certain big middle-income economies may carry risks and threaten medium-term recovery, especially if currency values rise suddenly or if asset bubbles emerge.”

Most low-income countries saw trade gains in 2010 and, overall, their GDP rose 5.3% in 2010. This was supported by a pick-up in commodity prices, and to a lesser extent in remittances and tourism. Their prospects are projected to strengthen even more, with growth of 6.5% in both 2011 and 2012, respectively.

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