Growth to slow down hitting hard the poor countries
Wednesday, 1 April 2009
FE Report
Gross Domestic Product (GDP) growth in the developing world will slow to a projected 2.1 per cent in 2009 from 5.8 per cent in 2008, according to World Bank (WB) estimates released Tuesday.
The WB has more than halved its November 2008 projection of 4.4 per cent growth in developing countries in 2009, reflecting the rapid deterioration of global financial and economic conditions.
The new Global Economic Prospects update has also noted that global growth is expected to contract by 1.7 per cent this year. This would be the first decline in world output since World War II. GDP is projected to decline by 3.0 per cent in OECD (Organisation for Economic Cooperation and Development) countries and by 2.0 per cent in other high-income economies.
The WB's baseline forecast has predicted growth momentum to turn weakly positive in 2010 as financial-sector consolidation, lost wealth and knock-on effects from the financial crisis continue to dampen economic activity. However, the pace and timing of the recovery is still highly uncertain.
"Across the developing world, we see that conditions of recession are affecting the poorest people, making them even more vulnerable than before to sudden shocks-but also reducing opportunities available to them, and frustrating their hopes," said Justin Yifu Lin, WB's Chief Economist and Senior Vice President, Development Economics "This could reverse years of progress, and is nothing less than an emergency for development," added Justin Yifu Lin.
Prospects for South Asia have been marked down to 3.7 per cent growth for 2009 from earlier forecasts of 5.4 per cent for 2009-and down from 5.6 per cent growth in 2008. Though terms of trade have moved in the region's favour with lower oil prices, weaker export demand is being felt sharply.
In the update, the WB emphasised that even though growth should rebound-albeit slowly-economic activity will remain depressed, with unemployment and significant sectoral adjustment persisting for the next two years.
"Even if global growth turns positive again in 2010, output levels will remain depressed, fiscal pressures will mount, and unemployment levels will rise further in virtually every country well into 2011," explained Hans Timmer, Manager, Global Trends, in the WB's Development Prospects Group.
World trade in goods and services is expected to fall 6.1 per cent in 2009, a historic decline, according to the new Global Economic Prospects update by the WB. At $47/bbl in 2009, oil prices are projected to be more than 50 per cent below their 2008 levels. Non-oil prices are also expected to remain low, some 30 per cent lower than in 2008.
Fiscal balances are projected to deteriorate sharply in developing countries in response to weaker revenues, higher borrowing costs, and larger transfers to maintain social safety nets.
The developing world's need for external financing is likely to increase to $1.3 trillion in 2009, including current account deficits and principal repayments on private debt coming due. With declining capital flows, this would generate a financing gap of between $270 and $700 billion. The largest funding gaps are in Europe and Central Asia, Latin America, and Sub-Saharan Africa.
World GDP growth is expected to increase to a modest 2.3 per cent in 2010, but if a balance of payments crisis were to emerge within a developing region, it would prove difficult to contain and would hamper global recovery. Another risk is that the recovery in credit markets may proceed more slowly due to continued financial sector problems, which would prolong the period of capacity adjustment in the real sector and extend the global downturn.
Meanwhile, a report by Roel Landingin in Manila under FT Syndication Service adds: Money sent home by migrants to families in developing countries is set to fall by up to 8.0 per cent this year, according to the World Bank.
But remittances could rise again as soon as next year, underscoring the resilience of such payments compared to other external flows of money during downturns in rich countries.
Dilip Ratha, head of the World Bank's technical group on migration and remittances, told a conference in Manila that remittance growth was poised to recover in 2010 and 2011 as overseas workers in rich countries benefited from sectoral shifts and government stimulus packages.
In the US, migrant employment is rising in the hotel, restaurants, wholesale and retail trade, offsetting losses in construction and manufacturing jobs, he said.
"Job losses are not different between natives and migrants," Mr Ratha said, noting that protectionism in the jobs market was not apparent, at least in the US.
Globally, remittances to developing countries rose by only 8.8 per cent to $305bn last year after rising 16 per cent in 2007 and 18 per cent in 2006. The World Bank forecasts remittances will fall to $280-290bn this year and $280-299bn next year because of recession in many of the rich countries that host migrant employees.
Mr Ratha said the regional impact of lower remittances this year would be uneven. Developing countries in eastern Europe and central Asia are likely to see remittances fall by 10.1-12.7 per cent. Money sent home by Tajik migrants in Russia is affected by the depreciation of the rouble, which has fallen by 35 per cent since August 2008, he said.
On the other hand, developing countries in the Middle East and north Africa will suffer only a modest decline of 1.4-5.2 per cent in remittances. Flows from Gulf Co-operation Countries are not affected by falling oil prices, said Mr Ratha.
Poor countries in east Asia and the Pacific would probably see remittances slow by 4.2-7.5 per cent. The Philippines could see money sent home by migrants fall by only 4 per cent, said the World Bank economist.
The Philippines is the world's fourth biggest remittance receiving country. Remittances, which last year reached $16.4bn, help to keep the country's current account in surplus and pay for the basic needs of thousands of families.
The Asian Development Bank estimates that remittances help keep 4.0m-5.0m of the more than 90m Filipinos from poverty.
The Philippine central bank, which sponsored the research conference, invited prominent economists from the Philippines, US and Europe to deliver papers on the macroeconomic, monetary and financial implications of remittances.
Meanwhile, World Bank Group President Robert B. Zoellick said there would be a sharp slowdown in economic growth in the developing world this year, putting more poor people at risk, and the Group of 20 (G-20) must not shrink from combining ideas and actions to restore confidence in the world economy.
Speaking at a Thomson Reuters Newsmaker in London, Zoellick said many of the immediate challenges of the crisis could be addressed if the Group of 20 reformed and empowered existing international institutions to help resist protectionism, evaluate the effectiveness of stimulus packages, and monitor banking reforms.
Zoellick said in his speech ahead of the G-20 summit in London new data from the World Bank showed that a estimated 53 million more people would be trapped in poverty this year, subsisting on less than $1.25 a day, because of the crisis. The world economy would contract by 1.7 per cent this year compared to growth of 1.9 per cent in 2008 - the first global decline since World War II.
Poor people in developing countries had far less of a cushion to protect them against the effects of the crisis.
"In London, Washington, and Paris people talk of bonuses or no bonuses. In parts of Africa, South Asia, and Latin America, the struggle is for food or no food," Zoellick said.
Citing World Bank initiatives in microfinance, infrastructure and bank capitalisations, Zoellick said it was important for governments, international institutions, civil society, and the private sector to mobilise resources and constantly innovate.
As an example of the World Bank's latest innovation, Zoellick said he hoped the G-20 would endorse a new $50 billion Global Trade Liquidity Programme. The programme combines a $1.0 billion investment from the World Bank with financing from governments and regional development banks. These public funds can be leveraged by a risk-sharing arrangement with major private sector partners, such as Standard Chartered, Standard Bank, and Rabobank.
"G-20 backing will help us gain more momentum, thereby increasing support," Zoellick said.
Zoellick noted that those who had recognised the scale of today's crisis were calling for new global governance regimes.
But the immediate challenge is to reform, empower, and use existing institutions more effectively, including by giving developing countries more representation.
"If leaders are serious about creating new global responsibilities or governance, let them start by modernising multilateralism to empower the WTO, the IMF, and the World Bank Group to monitor national policies," Zoellick said. "Bringing sunlight to national decision-making would contribute to transparency, accountability, and consistency across national policies."
Zoellick said developing countries needed to be part of the global solution to the global crisis.
"Isn't it time to institutionalise support for the most vulnerable during crises, especially those not of their own making?" said Zoellick, who has proposed that developed countries allocate 0.7 per cent of the stimulus packages to a Vulnerability Fund for developing countries.
"A commitment to put in place structures to support and fund safety nets for those most at risk would go a long way to show that this G-group will not endorse a two tier world - with summits for financial systems, and silence for the poor."
"We have seen over the last six decades how markets can lift hundreds of millions of people out of poverty while expanding freedom. But we have also seen how unfettered greed and recklessness can squander those very gains," Zoellick said.
"For the 21st Century, we need market economies with a human face. Human market economies must recognise their responsibility to the individual and society."
Gross Domestic Product (GDP) growth in the developing world will slow to a projected 2.1 per cent in 2009 from 5.8 per cent in 2008, according to World Bank (WB) estimates released Tuesday.
The WB has more than halved its November 2008 projection of 4.4 per cent growth in developing countries in 2009, reflecting the rapid deterioration of global financial and economic conditions.
The new Global Economic Prospects update has also noted that global growth is expected to contract by 1.7 per cent this year. This would be the first decline in world output since World War II. GDP is projected to decline by 3.0 per cent in OECD (Organisation for Economic Cooperation and Development) countries and by 2.0 per cent in other high-income economies.
The WB's baseline forecast has predicted growth momentum to turn weakly positive in 2010 as financial-sector consolidation, lost wealth and knock-on effects from the financial crisis continue to dampen economic activity. However, the pace and timing of the recovery is still highly uncertain.
"Across the developing world, we see that conditions of recession are affecting the poorest people, making them even more vulnerable than before to sudden shocks-but also reducing opportunities available to them, and frustrating their hopes," said Justin Yifu Lin, WB's Chief Economist and Senior Vice President, Development Economics "This could reverse years of progress, and is nothing less than an emergency for development," added Justin Yifu Lin.
Prospects for South Asia have been marked down to 3.7 per cent growth for 2009 from earlier forecasts of 5.4 per cent for 2009-and down from 5.6 per cent growth in 2008. Though terms of trade have moved in the region's favour with lower oil prices, weaker export demand is being felt sharply.
In the update, the WB emphasised that even though growth should rebound-albeit slowly-economic activity will remain depressed, with unemployment and significant sectoral adjustment persisting for the next two years.
"Even if global growth turns positive again in 2010, output levels will remain depressed, fiscal pressures will mount, and unemployment levels will rise further in virtually every country well into 2011," explained Hans Timmer, Manager, Global Trends, in the WB's Development Prospects Group.
World trade in goods and services is expected to fall 6.1 per cent in 2009, a historic decline, according to the new Global Economic Prospects update by the WB. At $47/bbl in 2009, oil prices are projected to be more than 50 per cent below their 2008 levels. Non-oil prices are also expected to remain low, some 30 per cent lower than in 2008.
Fiscal balances are projected to deteriorate sharply in developing countries in response to weaker revenues, higher borrowing costs, and larger transfers to maintain social safety nets.
The developing world's need for external financing is likely to increase to $1.3 trillion in 2009, including current account deficits and principal repayments on private debt coming due. With declining capital flows, this would generate a financing gap of between $270 and $700 billion. The largest funding gaps are in Europe and Central Asia, Latin America, and Sub-Saharan Africa.
World GDP growth is expected to increase to a modest 2.3 per cent in 2010, but if a balance of payments crisis were to emerge within a developing region, it would prove difficult to contain and would hamper global recovery. Another risk is that the recovery in credit markets may proceed more slowly due to continued financial sector problems, which would prolong the period of capacity adjustment in the real sector and extend the global downturn.
Meanwhile, a report by Roel Landingin in Manila under FT Syndication Service adds: Money sent home by migrants to families in developing countries is set to fall by up to 8.0 per cent this year, according to the World Bank.
But remittances could rise again as soon as next year, underscoring the resilience of such payments compared to other external flows of money during downturns in rich countries.
Dilip Ratha, head of the World Bank's technical group on migration and remittances, told a conference in Manila that remittance growth was poised to recover in 2010 and 2011 as overseas workers in rich countries benefited from sectoral shifts and government stimulus packages.
In the US, migrant employment is rising in the hotel, restaurants, wholesale and retail trade, offsetting losses in construction and manufacturing jobs, he said.
"Job losses are not different between natives and migrants," Mr Ratha said, noting that protectionism in the jobs market was not apparent, at least in the US.
Globally, remittances to developing countries rose by only 8.8 per cent to $305bn last year after rising 16 per cent in 2007 and 18 per cent in 2006. The World Bank forecasts remittances will fall to $280-290bn this year and $280-299bn next year because of recession in many of the rich countries that host migrant employees.
Mr Ratha said the regional impact of lower remittances this year would be uneven. Developing countries in eastern Europe and central Asia are likely to see remittances fall by 10.1-12.7 per cent. Money sent home by Tajik migrants in Russia is affected by the depreciation of the rouble, which has fallen by 35 per cent since August 2008, he said.
On the other hand, developing countries in the Middle East and north Africa will suffer only a modest decline of 1.4-5.2 per cent in remittances. Flows from Gulf Co-operation Countries are not affected by falling oil prices, said Mr Ratha.
Poor countries in east Asia and the Pacific would probably see remittances slow by 4.2-7.5 per cent. The Philippines could see money sent home by migrants fall by only 4 per cent, said the World Bank economist.
The Philippines is the world's fourth biggest remittance receiving country. Remittances, which last year reached $16.4bn, help to keep the country's current account in surplus and pay for the basic needs of thousands of families.
The Asian Development Bank estimates that remittances help keep 4.0m-5.0m of the more than 90m Filipinos from poverty.
The Philippine central bank, which sponsored the research conference, invited prominent economists from the Philippines, US and Europe to deliver papers on the macroeconomic, monetary and financial implications of remittances.
Meanwhile, World Bank Group President Robert B. Zoellick said there would be a sharp slowdown in economic growth in the developing world this year, putting more poor people at risk, and the Group of 20 (G-20) must not shrink from combining ideas and actions to restore confidence in the world economy.
Speaking at a Thomson Reuters Newsmaker in London, Zoellick said many of the immediate challenges of the crisis could be addressed if the Group of 20 reformed and empowered existing international institutions to help resist protectionism, evaluate the effectiveness of stimulus packages, and monitor banking reforms.
Zoellick said in his speech ahead of the G-20 summit in London new data from the World Bank showed that a estimated 53 million more people would be trapped in poverty this year, subsisting on less than $1.25 a day, because of the crisis. The world economy would contract by 1.7 per cent this year compared to growth of 1.9 per cent in 2008 - the first global decline since World War II.
Poor people in developing countries had far less of a cushion to protect them against the effects of the crisis.
"In London, Washington, and Paris people talk of bonuses or no bonuses. In parts of Africa, South Asia, and Latin America, the struggle is for food or no food," Zoellick said.
Citing World Bank initiatives in microfinance, infrastructure and bank capitalisations, Zoellick said it was important for governments, international institutions, civil society, and the private sector to mobilise resources and constantly innovate.
As an example of the World Bank's latest innovation, Zoellick said he hoped the G-20 would endorse a new $50 billion Global Trade Liquidity Programme. The programme combines a $1.0 billion investment from the World Bank with financing from governments and regional development banks. These public funds can be leveraged by a risk-sharing arrangement with major private sector partners, such as Standard Chartered, Standard Bank, and Rabobank.
"G-20 backing will help us gain more momentum, thereby increasing support," Zoellick said.
Zoellick noted that those who had recognised the scale of today's crisis were calling for new global governance regimes.
But the immediate challenge is to reform, empower, and use existing institutions more effectively, including by giving developing countries more representation.
"If leaders are serious about creating new global responsibilities or governance, let them start by modernising multilateralism to empower the WTO, the IMF, and the World Bank Group to monitor national policies," Zoellick said. "Bringing sunlight to national decision-making would contribute to transparency, accountability, and consistency across national policies."
Zoellick said developing countries needed to be part of the global solution to the global crisis.
"Isn't it time to institutionalise support for the most vulnerable during crises, especially those not of their own making?" said Zoellick, who has proposed that developed countries allocate 0.7 per cent of the stimulus packages to a Vulnerability Fund for developing countries.
"A commitment to put in place structures to support and fund safety nets for those most at risk would go a long way to show that this G-group will not endorse a two tier world - with summits for financial systems, and silence for the poor."
"We have seen over the last six decades how markets can lift hundreds of millions of people out of poverty while expanding freedom. But we have also seen how unfettered greed and recklessness can squander those very gains," Zoellick said.
"For the 21st Century, we need market economies with a human face. Human market economies must recognise their responsibility to the individual and society."