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World Bank forecasts
gloom
By Emad Mekay
WASHINGTON - World economic growth will
slow this year to 3.1% because of rises in
interest rates in the United States and the value
of the euro, coupled with a slump in demand for
exports from developing nations, the World Bank
said in its annual forecast.
The
Washington-based lender said in its Global
Development Finance 2005 report on Wednesday that
growth among developing nations will be 5.7% this
year, down from 6.6% in 2004, but still above
recent growth trends. The global outlook will be a
major discussion point at next week's joint Spring
Meetings of the World Bank and the International
Monetary Fund (IMF) attended by dozens of finance
ministers from around the world.
The
growth forecast also provides an important
backdrop for the consideration of other economic
issues, including aid, development loans and
foreign reserves. By region, the World Bank
forecast said that growth in East Asia is
projected to slow in 2005 and 2006, but only to
still-high levels of 7.4% and 6.9% respectively.
In Eastern Europe and Central Asia, the bank said
high oil prices helped Russia's growth and boosted
other economies in the region last year. It
forecast their overall growth will be 5.5% in
2005, and 4.9% in 2006.
Latin America and
the Caribbean will see their 2004 expansion rate
ebbing in 2005 and 2006, but only moderately, to
4.3% and 3.7%. The area had experienced a strong
rebound from 1.7% in 2003 to 5.7% in 2004. This
was mostly driven by output gains in Mexico, Chile
and Brazil, along with a sizeable rebound in
Argentina following its currency depreciation of
39%.
South Asia will grow at 6.2% and 6.4%
in 2005 and 2006 respectively, while the Middle
East and North Africa (MENA) will continue its
downward trend to 4.9% this year and 4.3% the
next. Last year, South Asia and MENA were the only
developing regions to record a slowdown in growth.
Even though South Asia's 2004 growth was
impressive at 6.6%, it was down from 7.5% the
previous year. MENA's growth slowed to 5.1% in
2004, down from 5.5% the year before.
Although economic activity in Sub-Saharan
Africa is expected to pick up, reaching 4.1% in
2005 and 4% in 2006, the report said this will
remain behind the performance of most other
developing regions. Growth in sub-Saharan Africa
increased by an estimated 3.8% in 2004, with
virtually all countries reporting positive growth,
and some reaching 5%.
The World Bank
forecasts that increases in US interest rates and
the effects of the 25% appreciation of the euro
since February 2002 will continue to contribute to
a slowing of gross domestic product (GDP) growth
in the second half of 2004 and into 2005 in
developed nations. GDP growth among high-income
countries will ease to about 2.4% in 2005, it
said.
Among the other risks facing the
global economy is the possibility of an abrupt
increase in interest rates, a further large and
steep depreciation of the US dollar and a
larger-than-anticipated hike in oil prices. This
could trigger not only a significant global
slowdown but potentially a world recession, warned
the bank. "We should also keep in mind that
current global financial imbalances pose risks -
of disorderly exchange rate movements or of
interest rate increases - that could threaten
these gains," said Francois Bourguignon, the World
Bank's chief economist. "Developing countries need
to prepare themselves for adjustments, some of
which could be sudden."
The report counted
the US$666 billion US current account deficit, now
equivalent to 5.6% of the US GDP, as a major
threat to global growth. The deficit means that
many developing countries are acquiring surpluses
of foreign reserves. The World Bank warned that
this excessive accumulation of foreign reserves
could open those countries to risks associated
with future exchange rates and fiscal costs. "As a
result, high-reserve countries may need to
re-evaluate the desirability and sustainability of
continued reserve accumulation," the bank said.
Foreign reserves held by developing countries grew
by $378 billion in 2004 to an estimated $1.6
trillion - an all-time high. China held $610
billion while India held $125 billion and the
Russian Federation $114 billion.
As to its
reading of last year, the report said that the
overall growth of 2004 was 3.8%, the highest rate
of expansion in decades. "It is no longer news
that the world economy performed very well in
2004, with possibly the highest rate of expansion
in nearly 30 years," said IMF Managing Director
Rodrigo de Rato. The rate was 6.6% in developing
countries and led by a "torrid export-led
expansion in China".
The Bank blamed
higher oil prices and exchange rate appreciation
for causing quarterly output drops in a number of
rich nations in the second half, especially in
Germany, Italy, and Japan. But all developing
regions grew faster in 2004 than they did during
the past decade. Oil and other commodity exporters
were able to build up current account surpluses
while importers - the majority of developing
countries - saw a significant rise in their import
bills.
In contrast to earlier experiences
of rising commodity prices, developing countries,
particularly China, were the main engines of
bigger demand over the past few years, said the
report. The report also noted that foreign direct
investments outflows from developing countries
rose to an estimated $40 billion in 2004, up from
$16 billion in 2002. These outflows are coming,
for the most part, from the same countries
receiving the bulk of private capital inflows,
namely Brazil, China, Mexico and Russia.
(Inter Press
Service) |
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Dollar catching Asian flu
(Mar 11, '05)
For a few dollars
less
(Feb 26. '05)
Global outlook: No risks, no
gains (Feb
15, '05)
Global boom winding down, warns
UN (Feb
2, '05)
Central banks dump dollar for
euro (Jan
27, '05)
Asia, US to buoy global growth, says
IMF (Apr 23,
'04)
Ominous: The US deficit vs the
dollar (Oct
14, '04)
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