World Bank: More severe economic shocks in 2012

Published January 19th, 2012 - 02:05 GMT
Developing countries have less fiscal and monetary space for remedial measures than they did in 2008/09, Mr. Justin Yifu Lin said
Developing countries have less fiscal and monetary space for remedial measures than they did in 2008/09, Mr. Justin Yifu Lin said

The World Bank has told developing countries to prepare for shocks that could be more severe than the 2008 crisis, warning of a possible slump in global economic growth.

World Bank said in its 2012 Global Economic Prospects report yesterday that the ripple effects of the financial turmoil in the Eurozone and weakening growth in emerging markets were lowering global growth prospects. "The global economy is entering into a new phase of uncertainty and danger. Developing countries need to evaluate their vulnerabilities and prepare for further shocks, " Mr. Justin Yifu Lin, the bank's chief economist said. He said developing countries have less fiscal and monetary space for remedial measures than they did in 2008/09, which may constrain their ability to respond if international finance dries up and global conditions deteriorate.

Mr. Hans Timmer, the director of development prospects at the World Bank, however, advised that countries should line up financing in advance to cover up budget deficits, review the health of their banking sector, and prioritise spending on social safety nets and infrastructure to prepare for the possibility of shocks. The bank also cut its global growth forecast for 2012 to 5.4 percent from 6.2 percent for developing countries and 1.4 percent from 2.7 percent developed countries. The global growth is projected at 2.5 and 3.11 percent for 2012 and 2013, respectively.

The report states that slower growth of the global economy is already seen in weakening global trade and commodity prices. Global exports of goods and services is said to have expanded by an estimated 6.6 percent in 2011, down from 12.4 percent in 2010 and is projected to rise by only 4.7 percent in 2012.

Declining commodity prices are said to have contributed to easing of headline inflation in most developing countries. Uganda's inflation for instance slowed from 30.4 percent in October to 27 percent in December 2011 due to increased food supply to markets, resulting into a marginal fall in commodity price.

Despite the volatilities in the global economy, growth in Africa remained robust, edging up from 4.8 percent in 2010 to 4.9 percent in 2011. just below the 5 percent pre-crisis average.


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