Emerging-market economies, growing almost three times faster than their developed counterparts, needed to speed spending cuts and interest-rate increases as they fought inflation and overheating, the World Bank said.
The Washington-based institution lowered its growth forecast for the world economy this year to 3.2 per cent from a January estimate of 3.3 per cent, to reflect Japan’s earthquake and political unrest in West Asia and North Africa. The World Bank left unchanged a prediction for a global rebound to 3.6 per cent in 2012.
Developing countries “have put the crisis-fighting stage of the recovery behind them,” Andrew Burns, the World Bank’s manager of global macroeconomics, told reporters yesterday. “They now need to be reorienting themselves towards establishing the conditions that are going to allow them to have strong growth in years to come,” he added.
While developed nations contend with high unemployment and Europe’s debt crisis, many emerging economies with strong expansions are yet to remove fiscal stimulus enacted to cushion the global recession, according to the World Bank. Real interest rates are low or negative in many countries even as policy makers from India to Peru raise borrowing costs, according to the bank.
China’s inflation
Developing nations also needed more flexible currencies, the World Bank’s Global Economic Prospects report said. In China, the government is “very unlikely” to meet its 4 per cent inflation target for the year, with the rate set to stay at about 5 per cent for “a few more months,” Ardo Hansson, the lender’s chief economist for China, said at a briefing in Beijing.
The World Bank, which was established after World War II to fight poverty, offers financial and technical assistance to countries, including $1.5 billion in loans to help improve India’s rural roads last year.
High-income economies were seen growing 2.2 per cent this year and 2.7 per cent in 2012, the report said. That compared with 6.3 per cent and 6.2 per cent in the emerging regions, which included nations from Indonesia to South Africa, the bank’s report added.
US growth
The bank cut its forecast for a US expansion to 2.6 per cent this year from the January estimate of 2.8 per cent. The agency expected 2.9 per cent growth next year and recent economic data point to a “growth pause,” Burns said. He said the bank did not see a “double-dip” as likely in the US.
Emerging markets now account for almost half of global crude-oil demand and China absorbs 40 per cent of the world’s metal supplies, contributing to the increase in prices observed since the recovery, according to the bank report. Oil prices are up 37 per cent in the past year. Copper surged to a record $10,190 a metric tonne on the London Metal Exchange on February 15, as mining companies struggled to keep pace with rising consumption.
The commodity developments called for a change in mindset from those countries, which had become key players and must embrace the challenges and responsibilities that come with it, Burns said.
India’s growth
“Developing countries are going to increasingly have to not look at these as external events that are imposed upon them,” such as an oil price shock, Burns said. “Increasingly these are reflections of a strong growth that they have.”
China’s growth will slow to 9.3 per cent this year, from 10.3 per cent in 2010, and be 8.7 per cent in 2012, the bank said. India would grow 8 per cent this year and 8.4 per cent next year, it said.
The rise in commodity prices and strong capital inflows have contributed to faster inflation, which in developing countries was close to 7 percent in April from a year earlier, more than 3 percentage points higher than in July 2009, according to the report.
