DUSHANBE, January 18, 2012, Asia-Plus — Global Economic Prospects (GEP) 2012 by the World Bank says developing countries should prepare for further downside risks, as Euro Area debt problems and weakening growth in several big emerging economies are dimming global growth prospects.
The Bank has lowered its growth forecast for 2012 to 5.4 percent for developing countries and 1.4 percent for high-income countries (-0.3 percent for the Euro Area), down from its June estimates of 6.2 and 2.7 percent (1.8 percent for the Euro Area), respectively. Global growth is now projected at 2.5 and 3.1 percent for 2012 and 2013, respectively.
Slower growth is already visible in weakening global trade and commodity prices. Global exports of goods and services expanded an estimated 6.6 percent in 2011 (down from 12.4 percent in 2010), and are projected to rise by only 4.7 percent in 2012. Meanwhile, global prices of energy, metals and minerals, and agricultural products are down 10, 25 and 19 percent respectively since peaks in early 2011. Declining commodity prices have contributed to an easing of headline inflation in most developing countries. Although international food prices eased in recent months, down 14 percent from their peak in February 2011, food security for the poorest, including in the Horn of Africa, remains a central concern.
Developing countries reportedly have less fiscal and monetary space for remedial measures than they did in 2008/09. As a result, their ability to respond may be constrained if international finance dries up and global conditions deteriorate sharply.
While prospects in most low-and middle-income countries remain favorable, the ripple effects of the crisis in high-income countries are being felt worldwide. Already, developing country sovereign spreads have increased 45 basis points on average and gross capital flows to developing countries plunged to $170 billion in the second half of 2011, compared with $309 billion received during the same period in 2010.
According to the report, GDP growth in Europe and Central Asia increased marginally from 2010 outturns to 5.3 percent in 2011, despite the global financial turmoil since August 2011 and weakening external demand, especially from the Euro Area. However, the expected slowdown in high-income Europe, still troublesome inflationary pressures in the region, and reduced capital flows due to the Euro Area crisis may slow regional growth to 3.2 percent in 2012, before firming to 4.0 percent by 2013.
The report notes that migrant remittances are a very importance source of both foreign currency and domestic incomes for several countries in the developing Europe and Central Asia region. Overall, they represent about 1.3 percent of regional GDP, but rise to 10 or more percent of GDP for countries like Albania, Armenia and Bosnia and Herzegovina, and between 20 and 35 percent of GDP for Kyrgyzstan, Moldova and Tajikistan.
A small, sustained crisis scenario reportedly could lead to declines in remittances flows in the Europe and Central Asia region in the order of 3 to 4 percent in 2012 and 2013 with the largest effects in Tajikistan, Kyrgyzstan, and Moldova.
