India, developing nations driving global growth, but risks remain
By Arun Kumar, IANSWednesday, January 12, 2011
WASHINGTON - Led by India and other developing countries, the world economy is moving on from a post-crisis bounce-back phase of recovery to slower but still solid growth this year and the next, according to the World Bank.
Global GDP, which expanded by 3.9 percent in 2010, is expected to slow to 3.3 percent in 2011, the World Bank’s Global Economic Prospects 2011 released Thursday said.
Developing countries face three main short-term risks-tensions in financial markets, large and volatile capital flows, and a rise in high food prices, it said.
For the longer-term, countries need to shift focus from short-term crisis management toward measures that address underlying structural challenges, the bank said.
Most of the developing world has weathered the financial crisis well, and, by the end of 2010, many emerging market economies had recovered or were close to resuming the growth potential they had attained prior to the crisis, the Bank said.
“On the upside, strong developing-country domestic demand growth is leading the world economy, yet persistent financial sector problems in some high-income countries are still a threat to growth and require urgent policy actions,” said Justin Yifu Lin, the World Bank’s chief economist and senior vice president for development economics.
Developing country growth of 7 percent in 2010, and 6 percent in 2011 is projected, which is more than twice the rate projected for high-income countries.
Full-scale financial turmoil, while viewed as unlikely, however, could threaten recovery in developing as well as developed countries, the Bank warned.
Capital flows to developing countries picked up in 2010, in part because persistent low interest rates in certain high-income countries led investors to seek higher yield in developing countries.
Net international equity and bond flows to developing countries rose sharply in 2010, rising by 42 percent and 30 percent respectively, with nine countries - Brazil, China, India, Indonesia, Malaysia, Mexico, South Africa, Thailand and Turkey-receiving the bulk 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.
Overall the capital flows trend is a positive development, the Bank said. But, unless such flows are well managed, they can destabilize movements in exchange rates, commodity prices, and asset-prices, it said.
(Arun Kumar can be contacted at arun.kumar@ians.in)
