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Growth in 'developing nations to be modest'

Dubai, June 14, 2013

Risks from advanced economies have eased and growth is firming, despite ongoing contraction in the euro area. However, the pick-up in developing countries will be modest because of capacity constraints in several middle income countries, according to a report by he World Bank.

Global GDP is expected to expand 2.2 per cent this year and strengthen to 3 and 3.3 per cent in 2014 and 2015, the World Bank said in its newly released Global Economic Prospects (GEP) report.

Developing-country GDP is now projected to be around 5.1 per cent this year, strengthening to 5.6 per cent and 5.7 per cent in 2014 and 2015, respectively.

Growth in Brazil, India, Russia, South Africa and Turkey has been held back by supply bottlenecks. While external risks have eased, growth in these countries is unlikely to reach pre-crisis rates unless supply-side reforms are completed, the report said.

In China, growth has slowed as authorities seek to rebalance the economy.

Looking at broader region-wide trends, the East Asia and Pacific region is expected to grow by 7.3 per cent this year - Europe and Central Asia by 2.8 per cent, Latin America and the Caribbean by 3.3 per cent, Middle East and North Africa (Mena) by 2.5 per cent, South Asia by 5.2 per cent and Sub-Saharan Africa by 4.9 per cent.

For high-income countries, fiscal consolidation, high unemployment and still weak consumer and business confidence will keep growth this year to a modest 1.2 per cent, firming to 2 per cent in 2014 and 2.3 per cent by 2015.

Economic contraction in the euro area is projected to be 0.6 per cent for 2013, compared with the previous projection of 0.1 per cent.

Euro area growth is expected to be a modest 0.9 per cent in 2014 and 1.5 per cent in 2015.

"While there are markers of hope in the financial sector, the slowdown in the real economy is turning out to be unusually protracted," World Bank senior vice-president and chief economist Kaushik Basu said.

"This is reflected in the stubbornly high unemployment in industrialised nations, with unemployment in the euro zone actually rising, and in the slowing growth in emerging economies, with India's annual growth having dropped below 6 per cent for the first time in 10 years.

"There is heightened speculation that the US may withdraw quantitative easing and widespread concern about its consequences.

"By going into these topical matters, the GEP report alerts us to both the hopes and the risks in the global economy, and also gives valuable instructions on policy," he added.

Global trade, after contracting for several months, is expanding once again, but trade is expected to expand only 4 per cent this year, well off the pre-crisis pace of 7.3 per cent.

Not only will the volume of trade grow less quickly than in the past, the value of trade will grow even less quickly as commodity prices begin to ease in response to rapidly increasing supply.

The prices of metals and minerals are already down by 30 per cent and that of energy by 14 per cent since their peaks in early 2011.

"The coming on stream of new mines and energy sources is putting downward pressure on most industrial commodity prices. If commodity prices were to decline even faster than expected, commodity exporting developing countries could experience serious fiscal setbacks and weaker growth," said development prospects group director Hans Timmer.

Using 2005 purchasing power parity weights, global growth would be 3.1 per cent, 3.8 per cent and 4.1 per cent in 2013. 2014 and 2015, respectively.

Part of the resilience of global trade, despite the weakness in high-income economies, has been due to rapid expansion in South-South trade.

More than 50 per cent of developing country exports now go to other developing countries.

Even when China is excluded, South-South trade has been growing at an average rate of 17.5 per cent a year over the past decade, with manufacturing trade expanding as rapidly as commodities trade.

International bond issuance by developing countries is also at record levels, while bank lending and equity issuance for developing countries is up by almost 70 per cent as compared with first five months of last year.

In developing Europe, although activity has picked up, growth has not been fast enough to quickly reduce post-crisis output gaps and unemployment.

Finally, in the Mena region, GDP growth has been disrupted by political and social tensions. Unemployment and slow productivity remain central policy challenges.-TradeArabia News Service




Tags: World Bank | economy | growth |

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