Developing countries have been told to prepare for further downside risks as global economic meltdown, occasioned by the Euro Areas debt crisis, is not showing any signs of abating.
The private Guardian Newspaper Friday quoted the Bretton Woods institution in its newly-released Global Economic Prospects (GEP) 2012, as lowering growth forecast for 2012 to 5.4 per cent for developing countries and 1.4 per cent for high-income countries (-0.3 per cent for the Euro Area), down from its June estimates of 6.2 and 2.7 per cent (1.8 per cent for the Euro Area), respectively.
“Developing countries need to evaluate their vulnerabilities and prepare for further shocks, while there is still time,” the World Bank’s Chief Economist and Senior Vice President for Development Economics, Mr. Justin Yifu Lin, said.
He said developing countries had less fiscal and monetary space for remedial measures than they did in 2008/09. As a result, their ability to respond may be constrained if international finance dries up and global conditions deteriorate sharply.
To prepare for that possibility, the Director of Development Prospects at the World Bank, Mr. Hans Timmer, said, “developing countries should pre-finance budget deficits, prioritise spending on social safety nets and infrastructure, and stress-test domestic banks.”
According to the report, using purchasing power parity weights, global growth would be 3.4 and 4.0 per cent for 2012 and 2013, respectively.
It added that slower growth is already visible in weakening global trade and commodity prices. Global exports of goods and services expanded an estimated 6.6 per cent in 2011 (down from 12.4 per cent in 2010), and are projected to rise by only 4.7 per cent in 2012.
The report noted that global prices of energy, metals and minerals, and agricultural products are down to 10, 25 and 19 per cent respectively since it peaked in early 2011.
Declining commodity prices have contributed to an easing of headline inflation in most developing countries.
Although international food prices eased in recent months, down 14 per cent from their peak in February 2011, the report said food security for the poorest, including in the Horn of Africa, remains a central concern