Developing nations face sharpest slowdown since World War II
Monday, 15 December 2008
From Fazle Rashid
NEW YORK, Dec 14: The developing nations worldwide face the grim prospect of the sharpest economic slowdown since the Second World War with growth plunging to 4.5 per cent in 2009 from a healthy 7.9 in 2007, the World Bank in a report said last week. The volume of the global trade will contract to 2.1 per cent and flow of capital to developing nations would drop by 50 per cent.
The projections are among the most dire in a litany of recent gloomy forecast for the world economy. The World Bank warned that the downturn could throw many developing countries into crises that will keep tens of millions of people in poverty, the New York Times in a report said
Even more troubling, several economists said, there is no obvious engine to drive a recovery. China the fastest growing economy in the world will slow down to 7.5 per cent from a double digit growth rate during past several years. The developing world of which Bangladesh is one would witness growth rate not exceeding 2.9 per cent, the WB report predicted.
A big gap would open up between actual and potential output in many economies resulting in business failures, rising unemployment and declining incomes for some groups in society. The collapse of oil has knocked the wind out of consumers in oil exporting countries where the largest segments of Bangladesh labour forces is employed, the WB report said.
The developing countries that has been long resilient to the credit crunch and a weakening demand in the US had been hit hard by the global financial crises, a reputed paper quoted a senior WB economist as saying.
A collapse in investment will also hit hard the growing economy, he said. The investments in middle income countries will be down to 3.5 percent in 2009 from 13.2 per cent in 2007. The investment squeeze will be due to shrinkage in export.
The private sector capital flow from developed to developing world would drop to $530 billion from a peak of about $1000 billion in 2007. The average emerging market currency depreciated 15 percent against dollar in six weeks since September. This has prevented the central banks in the developing economies to cut interest rates to prop up growth.
The WB said the impact on the real economy in the developing world is already evident. Credit crunch and higher freight charges have gravely aggravated the world trade. 'You don't need negative growth in developing countries to have a situation that feels like recession,' said Hans Timmer who heads WB's international economic analyses and projections. He projected rising joblessness and closed factories in many countries.
Sudden drop in capital flows poses particular danger for oil exporters, some of whom have run into heavy debts. Simon Johnson, a former chief economist of the IMF said calmer atmosphere in foreign markets belied the gravity of the situation. The WB has recommended that countries undertake large fiscal stimulus to cushion downturn. The WB itself will lend out $100 billion to developing countries over next three years.
Deutsche Bank of Germany sounded even more pessimistic than the WB as it said the global growth would drop to a mere 0.2 percent with the US, China and Japan -- three mightiest economies facing recession of roughly equal severity. 'We are almost in an air pocket where we don't have a new global driver for growth,' chief economist of the German bank said.
Banks and the corporate world have urged the WB and regional banks to step up their trade finance programmes to help combat trade credit shortage that throttles the flow of goods around the world. The trade credit which underpins 90 percent of world merchandise world trade was worth $14,000 billion. This has been treated as low risk lending with cargo as additional collateral.
NEW YORK, Dec 14: The developing nations worldwide face the grim prospect of the sharpest economic slowdown since the Second World War with growth plunging to 4.5 per cent in 2009 from a healthy 7.9 in 2007, the World Bank in a report said last week. The volume of the global trade will contract to 2.1 per cent and flow of capital to developing nations would drop by 50 per cent.
The projections are among the most dire in a litany of recent gloomy forecast for the world economy. The World Bank warned that the downturn could throw many developing countries into crises that will keep tens of millions of people in poverty, the New York Times in a report said
Even more troubling, several economists said, there is no obvious engine to drive a recovery. China the fastest growing economy in the world will slow down to 7.5 per cent from a double digit growth rate during past several years. The developing world of which Bangladesh is one would witness growth rate not exceeding 2.9 per cent, the WB report predicted.
A big gap would open up between actual and potential output in many economies resulting in business failures, rising unemployment and declining incomes for some groups in society. The collapse of oil has knocked the wind out of consumers in oil exporting countries where the largest segments of Bangladesh labour forces is employed, the WB report said.
The developing countries that has been long resilient to the credit crunch and a weakening demand in the US had been hit hard by the global financial crises, a reputed paper quoted a senior WB economist as saying.
A collapse in investment will also hit hard the growing economy, he said. The investments in middle income countries will be down to 3.5 percent in 2009 from 13.2 per cent in 2007. The investment squeeze will be due to shrinkage in export.
The private sector capital flow from developed to developing world would drop to $530 billion from a peak of about $1000 billion in 2007. The average emerging market currency depreciated 15 percent against dollar in six weeks since September. This has prevented the central banks in the developing economies to cut interest rates to prop up growth.
The WB said the impact on the real economy in the developing world is already evident. Credit crunch and higher freight charges have gravely aggravated the world trade. 'You don't need negative growth in developing countries to have a situation that feels like recession,' said Hans Timmer who heads WB's international economic analyses and projections. He projected rising joblessness and closed factories in many countries.
Sudden drop in capital flows poses particular danger for oil exporters, some of whom have run into heavy debts. Simon Johnson, a former chief economist of the IMF said calmer atmosphere in foreign markets belied the gravity of the situation. The WB has recommended that countries undertake large fiscal stimulus to cushion downturn. The WB itself will lend out $100 billion to developing countries over next three years.
Deutsche Bank of Germany sounded even more pessimistic than the WB as it said the global growth would drop to a mere 0.2 percent with the US, China and Japan -- three mightiest economies facing recession of roughly equal severity. 'We are almost in an air pocket where we don't have a new global driver for growth,' chief economist of the German bank said.
Banks and the corporate world have urged the WB and regional banks to step up their trade finance programmes to help combat trade credit shortage that throttles the flow of goods around the world. The trade credit which underpins 90 percent of world merchandise world trade was worth $14,000 billion. This has been treated as low risk lending with cargo as additional collateral.