Global hopes pinned on developing
world By Abid Aslam
WASHINGTON - The world is entering its
second straight year of a United States-led
economic slowdown but resilient developing
economies are cushioning the effects, the World
Bank said on Wednesday in a report portending pain
for the poorest. The global lender said it expects
the world economy to grow by 3.3% this year, down
from 3.6% in 2007 and 3.9% the previous year.
Developing countries are expected to post
7.1% growth, slightly off their 2007 performance
of 7.4% but still a continuation of a four-year
streak of record expansion. By contrast, the bank
anticipated a lackluster 2.2%
from high-income countries and 1.9% from the US
economy, the world's biggest.
These
predictions could prove rosy if the United States
ends up taking other economies - including
developing ones - down with it, the bank said in
its Global Economic Prospects report for 2008. A
weaker US dollar, the specter of recession, and
rising financial-market volatility could cast a
shadow over this soft-landing scenario for the
global economy, it said.
These risks would
cut export revenues and capital inflows for
developing countries and reduce the value of their
dollar investments abroad. If this happened,
developing countries might have to draw down the
reserves and other buffers they have built up in
recent years.
"Overall, we expect
developing-country growth to moderate only
somewhat over the next two years. However, a much
sharper United States slowdown is a real risk that
could weaken medium-term prospects in developing
countries," said Uri Dadush, the bank's director
of development prospects.
Although Dadush
spoke of the "real risk" of a US recession, some
here already have declared it underway.
Merrill Lynch, in a report last week, said
the US government's latest jobs data confirmed the
country already was in the first month of a
recession. Last week's government employment
report, which rocked stock markets around the
world, said the jobless rate rose further in
December to reach 5%.
Other investment
banks disagreed with Merrill's assessment but the
brokerage house chided its detractors and the
larger commentariat. "To say that the backdrop is
'recession like' is akin to an obstetrician
telling a woman that she is 'sort of pregnant',"
the Merrill report said.
The World Bank,
in its report, assumed that turmoil in
international markets - unleashed by rash US
mortgage lenders, ravenous speculators, clueless
ratings agencies, and ineffective financial
regulators - would persist into late 2008.
However, the bank anticipated the costs of this to
large financial institutions would remain
manageable. It also expected falling housing
prices in the US would not have a calamitous
impact on consumer demand.
In any case, it
seems developing countries are taking up any
slack.
"Looking at trade, strong import
demand across the developing countries is helping
to sustain global growth. As a result, and given a
cheaper US dollar, American exports are expanding
rapidly," said Hans Timmer, a report co-author.
"This is helping shrink the US current account
deficit and is contributing to a decline in global
imbalances."
The report said prudent
macroeconomic management and technological
progress have helped to increase developing
countries' total factor productivity and real
income growth over the past 15 years. As a result,
poverty would fall further over the next decade.
Many commodity exporters have benefited
from robust developing-country growth, which has
contributed to high prices for oil, metals and
other items. Rising grain prices, however, are
hurting real incomes among the urban poor, the
bank said. It blamed the problem in part on high
oil, energy and fertilizer prices.
The
price of a barrel of light sweet crude oil
exceeded US$100 last week on the New York
Mercantile Exchange, breaking a psychological
barrier but not setting a new record in real terms
as the sum, once adjusted for inflation, amounted
to less than the peak price in 1980. No one denies
that prices remain near historic highs, however.
The report expected this year's cost of a barrel
of crude to average $84.10, up from $71.20 last
year, before coming down to $78.40 in 2009.
The bank also attributed rising food
prices to increased grain production for biofuels.
It saw little prospect that food would become more
affordable.
"Agricultural prices are
expected to remain nearly flat at high levels in
2008, as biofuels production continues to ramp up
in response to consumption mandates and production
subsidies, drawing resources from other crops,"
the report said.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
