The World Bank has asked the developing countries like India and Brazil to safeguard their economic growth, given that the world economy remains fragile and growth in high-income countries is weak four years after the onset of the global financial crisis.
Developing countries need to focus on raising the growth potential of their economies, while strengthening buffers to deal with risks from the euro area and fiscal policy in the US, the Bank said in its latest report on Global Economic Prospects, which was released on Tuesday.
“The economic recovery remains fragile and uncertain, clouding the prospect for rapid improvement and a return to more robust economic growth,” World Bank Group President Jim Yong Kim said.
“Developing countries have remained remarkably resilient thus far. But we can’t wait for a return to growth in the high-income countries, so we have to continue to support developing countries in making investments in infrastructure, in health, in education.
This will set the stage for the stronger growth that we know that they can achieve in the future,” he said.
Euro area uncertainty
According to the World Bank report in 2012, developing countries recorded among their slowest economic growth rates of the past decade, partly because of the heightened euro area uncertainty in May and June. Since then, financial market conditions have improved dramatically.
International capital flows to developing countries, which fell 30 per cent in the second quarter of 2012, have recovered and bond spreads have declined to below their long-term average levels of around 282 basis points, it said.
Equity markets
Developing-country stock markets are up 12.6 per cent since June, while equity markets in high-income countries are up 10.7 per cent.
However, the real-side of the economy has responded modestly. Output in developing countries has accelerated, but is being held back by weak investment and industrial activity in advanced economies, the report said.
“With governments in high-income countries struggling to make fiscal policies more sustainable, developing countries should resist trying to anticipate every fluctuation in developed countries and, instead, ensure that their fiscal and monetary policies are robust and responsive to domestic conditions,” Senior Vice-President and Chief Economist at the World Bank Kaushik Basu said.
Global GDP
The World Bank estimates global GDP grew 2.3 per cent in 2012, compared with last June’s expectation of 2.5 per cent.
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, the report said.
Developing-country GDP is estimated to have grown 5.1 per cent in 2012, and is projected to expand by 5.5 per cent in 2013, strengthening to 5.7 per cent and 5.8 per cent in 2014 and 2015, respectively.
Growth in high-income countries has been downgraded from earlier forecasts, at 1.3 per cent for 2012 and 2013, firming to 2.0 per cent in 2014 and 2.3 per cent by 2015, it said.
Euro zone growth
Growth in the euro area is now projected to only return to positive territory in 2014, with GDP expected to contract by 0.1 per cent in 2013, before edging up to 0.9 per cent in 2014 and 1.4 per cent in 2015.
Overall, global trade of goods and services, which grew only 3.5 per cent in 2012, is expected to accelerate, expanding by 6 per cent in 2013 and 7 per cent by 2015, the report said.
“The weakness in high-income countries is dampening developing-country growth, but strong domestic demand and growing South-South economic linkages have underpinned developing country resilience — to the point that, for the second year in a row, developing countries were responsible for more than half of global growth in 2012,” said Hans Timmer, Director, Development Prospects Group, World Bank.