The world economy is moving from a post-crisis bounce-back phase of recovery to slower but still solid growth this year and next, with developing countries contributing almost half of global growth, the World Bank says in a new report.
The report ÔÇô Global Economic Prospects 2011 ÔÇô estimates that global gross domestic product (GDP1), which expanded by 3.9 percent in 2010, will slow to 3.3 percent in 2011, before it reaches 3.6 percent in 2012.
Developing countries are expected to grow 7 percent in 2010, 6 percent in 2011 and 6.1 percent in 2012. They will continue to outstrip growth in high-income countries, which is projected at 2.8 percent in 2010, 2.4 percent in 2011 and 2.7 percent in 2012.
In most developing countries, GDP has rebounded to levels it would have hit had the boom-bust cycle not happened.
The World Bank says it foresees steady growth through 2012. However, recovery in several economies in emerging Europe and Central Asia and in some high-income countries is tentative.
It cautions that recovery is likely to be muted by high household debt, unemployment, weak housing and banking sectors, especially if countries do not apply corrective domestic policies.
“Strong developing-country domestic demand growth is leading the world economy,” said Justin Yifu Lin, the World Bank’s chief economist and senior vice president for development economics. “Yet persistent financial sector problems in some high-income countries are still a threat to growth and require urgent policy actions.”
The report notes that net international equity and bond flows to developing countries rose sharply in 2010, rising by 42 percent and 30 percent respectively, with nine countries receiving most of the increase in inflows.
Foreign direct investment to developing countries rose a more modest 16 percent in 2010, reaching $410 billion after falling 40 percent in 2009.
An important part of the rebound is due to rising South-South investments, particularly originating in Asia, adds the report.
“The pickup in international capital flows reinforced the recovery in most developing countries,” said Hans Timmer, director of development prospects at the World Bank. “However, heavy inflows to certain big middle-income economies may carry risks and threaten medium-term recovery, especially if currency values rise suddenly or if asset bubbles emerge.”
Most low-income countries saw trade gains in 2010 and, overall, their GDP rose 5.3 percent in 2010.
This was supported by a pick-up in commodity prices, and to a lesser extent in remittances and tourism. Their prospects are projected to strengthen even more, with growth of 6.5 percent in both 2011 and 2012, respectively.
According to the report, current relatively high food prices are having a mixed impact. In many economies, dollar depreciation, improved local conditions, and rising prices for goods and services means that the real price of food has not risen as much as the U.S. dollar price of internationally traded food commodities.
“However, double-digit price increases of key staples in the past few months are pressuring households in countries with an already-existing high burden of poverty and malnutrition. And, if global food prices rise further along with other key commodities, a repeat of the conditions in 2008 cannot be excluded,” cautioned Andrew Burns, manager of Global Macroeconomics in the World Bank’s Prospects Group.