The global economy is still doing it tough, with developing economies hitting headwinds, according to the World Bank.
Estimated growth this year in developing economies will shrink sharply with the global downturn much steeper than estimated in March.
Offsetting an even bigger fall is a slight improvement noted in China’s economy.
Last week, the World Bank lifted its estimate for China’s economic growth this year to 7.2% from an earlier forecast of 6.5%.
Yesterday it revealed a further slight change to global growth estimates this year which the Bank says will now be a contraction of 2.9%, down a touch from the 3% projection on June 11.
The bank’s last forecast said that economic growth in developing countries would rise by an estimated 1.2% this year, and said that without China and India, output would shrink 1.6%.
The bank said in late March that developing countries’ annual growth would be around 2.1% and zero, if China and India were excluded.
The bank’s global outlook is more pessimistic than the forecast by its sister organization, the International Monetary Fund.
The IMF forecast for this year calls for a global contraction of 1.3%, with growth returning to 2.4% in 2010.
"Developing countries are expected to grow by only 1.2% this year, after 8.1% growth in 2007 and 5.9% growth in 2008.
"When China and India are excluded, GDP in the remaining developing countries is projected to fall by 1.6%, causing continued job losses and throwing more people into poverty," the Bank said yesterday in a statement.
"Global GDP growth is expected to rebound to 2% in 2010 and 3.2% by 2011.
"In developing countries growth is expected to be higher, at 4.4 % in 2010 and 5.7 % in 2011, albeit subdued relative to the robust performance prior to the current crisis.
China’s economy is forecast to grow by 7.7% next year after the upwardly revised 7.2% estimate for this year (Still below the official Chinese Government target rate of 8%).
India’s forecast was for 5.1% this year and 8.0% growth in 2010.
the latest forecasts came in a report, "Global Development Finance 2009: Charting a Global Recovery," published to coincide with a three-day Annual Bank Conference on Development Economics opening yesterday in Seoul.(Source)
The World Bank expressed concern about the weak private capital flows into developing countries, which has fallen nearly by half this year — 49% — to $US363 billion compared with $US707 billion in 2008, after a record $US1.2 trillion in 2007.
"The need to restructure the banking system, combined with emerging limits to expansionary policies in high-income countries, will prevent a global rebound from gaining traction," Justin Lin, World Bank chief economist, said in a statement.
The bank called for "special attention" to "the risk of balance-of-payments crises and corporate debt restructurings in many countries," in order to "avoid another debt crisis as seen in the 1970s and 1980s."
That was particularly the case in the hard-hit developing countries in Europe and Central Asia, where GDP was projected to fall 4.7% in 2009, before a slight recovery to 1.6% growth in 2010.
A similar pattern of decline and rebound was seen for Latin America and the Caribbean, where a 2.2% GDP contraction is forecast for 2009, followed by a 2.0% rise next year.
In East Asia and Pacific, GDP was expected to rise 5.0% in 2009, 6.6% next year and 7.8% in 2011. South Asia would expand 4.6% in 2009, then 7.0% in 2010 and 7.8% the year after.
GDP in the Middle East and North Africa was expected to rise 3.1% in 2009 and 3.8% in 2010.
The bank said that global integration and the expanding role of private actors in international finance have brought huge benefits, but have also widened the scope for turmoil.
"Today, developing countries rely heavily on private flows and many countries are being hit by a collapse in corporate finance, with big companies and banks that were powering growth now in distress.
“Many corporations will be hard pressed to service their foreign currency liabilities with revenues earned in depreciating domestic currencies at the same time that export demand has plummeted,”
"The risk of balance-of-payments crises and corporate debt restructurings in many countries warrant special attention", the report cautions.
