World Bank growth forecasts lowered, impact on developing countries

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 Using purchasing power parity weights, global growth would be 3.4 and 4 percent for 2012 and 2013, respectively.

Food security a concern

Slower growth is already visible in weakening global trade and commodity prices. Global exports of goods and services expanded by 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.

Prepare for further shocks

"Developing countries need to evaluate their vulnerabilities and prepare for further shocks, while there is still time," said Justin Yifu Lin, the World Bank's chief economist and senior vice-president for development economics.

Developing countries have less fiscal and monetary space for remedial measures than they did in 2008/9. As a result, their ability to respond may be constrained if international finance dries up and global conditions deteriorate sharply.

To prepare for that possibility, Hans Timmer, director of development prospects at the World Bank, said: "Developing countries should pre-finance budget deficits, prioritise spending on social safety nets and infrastructure, and stress-test domestic banks."

Ripple effects felt

While prospects in most low-and middle-income countries remain favourable, 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 USD170 billion in the second half of 2011, compared with USD309 billion received during the same period in 2010.

"An escalation of the crisis would spare no one. Developed- and developing-country growth rates could fall by as much or more than in 2008/9" said Andrew Burns, manager of global macroeconomics and lead author of the report. "The importance of contingency planning cannot be stressed enough."

The full report and accompanying datasets are available at www.worldbank.org/globaloutlook.
Growth outlooks for each country are available in the full report at ]]www.worldbank.org/globaloutlook]].