DUSHANBE, January 17, 2013, Asia-Plus — Four years after the onset of the global financial crisis, the world economy remains fragile and growth in high-income countries is weak, says the World Bank in the Global Economic Prospects (GEP) report.
According to the report, developing countries need to focus on raising the growth potential of their economies, while strengthening buffers to deal with risks from the Euro Area and fiscal policy in the United States.
Last year developing countries recorded among their slowest economic growth rates of the past decade, partly because of the heightened Euro Area uncertainty in May and June of 2012. Since then, financial market conditions have improved dramatically. International capital flows to developing countries, which fell 30 percent in the second quarter of 2012, have recovered and bond spreads have declined to below their long-term average levels of around 282 basis points. Developing-country stock markets are up 12.6 percent since June, while equity markets in high-income countries are up by 10.7 percent. However, the real-side of the economy has responded modestly. Output in developing countries has accelerated, but is being held back by weak investment and industrial activity in advanced economies.
The World Bank estimates global GDP grew 2.3 percent in 2012, compared with last June’s expectation of 2.5 percent. Growth is expected to remain broadly unchanged at 2.4 percent growth in 2013, before gradually strengthening to 3.1 percent in 2014 and 3.31 percent in 2015. Developing-country GDP is estimated to have grown 5.1 percent in 2012, and is projected to expand by 5.5 percent in 2013, strengthening to 5.7 percent and 5.8 percent in 2014 and 2015, respectively. Growth in high-income countries has been downgraded from earlier forecasts, at 1.3 percent for 2012 and 2013, firming to 2.0 percent in 2014 and 2.3 percent by 2015. Growth in the Euro Area is now projected to only return to positive territory in 2014, with GDP expected to contract by 0.1 percent in 2013, before edging up to 0.9 percent in 2014 and 1.4 percent in 2015. Overall, global trade of goods and services, which grew only 3.5 percent in 2012, is expected to accelerate, expanding by 6.0 percent in 2013 and 7.0 percent by 2015.
Downside risks to the global economy include: a stalling of progress on the Euro Area crisis, debt and fiscal issues in the United States, the possibility of a sharp slowing of investment in China, and a disruption in global oil supplies. However, the likelihood of these risks and their potential impacts has diminished, and the possibility of a stronger-than-anticipated recovery in high-income countries has increased.
Although fiscal sustainability in most developing countries is not an issue, government deficits and debt are much higher today than in 2007.
