World Bank says developing countries should be prepared for more slowing in the global economy

By Paul Ndiho
January 26, 2012
A new report released by the World Bank last week says global prices of farm commodities like wheat and rice may decline by more than 10 percent this year. In its new report, World Bank researchers say developing countries should be prepared for more slowing in the global economy as a result of Europe's debt problems, and weakening growth in some big emerging economies.



“We have seen capital flows to developing countries decline by almost 50 percent and we are really beginning to see some of these effects in terms of activity. We have developing countries, the major developing countries offering slower growth now than they were earlier and that happening at the same time as Europe enters into a recession offers a pretty worrisome conjuncture."
The World Bank is lowering its growth forecast for 2012 to about 5 and a half percent for developing countries and 1 and a half percent for high-income countries. Global growth is now projected at about 2 and a half percent for this year and next.
"Obviously if what is happening in Europe were to deteriorate significantly is going to have important impacts for developing countries. We ran some scenarios here: were that crisis to become more serious, growth in developing countries could decline by almost some 4 percentage points, GDP be lower by 4 percentage points; that is a very significant slowdown.”
Slower growth is already visible in weakening prices. Global exports of goods and services are projected to rise by about 2 percent less than they did last year. Meanwhile, global prices of energy, metals, minerals, and agricultural products are off as much as 25 percent from their peaks of 2011.
"Developing countries really have to prepare for the unexpected, if you wish. What we are really suggesting to do is take a look at their current situation, take a look at their current spending, and take a cold hard look at what might happen and plan ahead a little bit."
Declining commodity prices have contributed to an easing of 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.
"We see oil prices potentially declining by as much as 20 percent that is going to have important impacts for the fiscal balances of oil exporting countries; it is going to have important impacts also for countries that are important exporters of metals and minerals. On the other hand it is going to be a positive for importers of those commodities."
Developing countries may have less fiscal and monetary space for remedial measures than they did in the global economic downturn that began in 2008. As a result, say economists like those at the World Bank, their ability to respond to another downturn may be constrained if global conditions deteriorate sharply again this year.