Europe’s debt crisis is likely to hamper global economic recovery, said a World Bank report released on Thursday.
The latest Global Economic Prospects 2010 report projects global GDP to expand between 2.9 in 2010 and 3.3 percent in 2011, gradually strengthening between 3.2 and 3.5 percent in 2012. Effectively this will make a big contrast from the 2.1 percent decline in 2009.
Developing economies are expected to grow between 5.7 and 6.2 percent each year from 2010-2012. High-income countries, however, are projected to grow by between 2.1 and 2.3 percent in 2010—not enough to undo the 3.3 percent contraction in 2009—followed by between 1.9 and 2.4 percent growth in 2011.
“The better performance of developing countries in today’s world of multipolar growth is reassuring,” said World Bank’s Chief Economist Justin Yifu Lin. “But, for the rebound to endure, high-income countries need to seize opportunities offered by stronger growth in developing countries.”
Here are some key facts from the Global Economic Prospects 2010 report:
-- Global GDP to expand between 2.9 and 3.3 percent in 2010 and 2011, strengthening between 3.2 and 3.5 percent in 2012, reversing from 2.1 percent decline in 2009.
-- Developing economies are expected to grow between 5.7 and 6.2 percent each year from 2010-2012.
-- High-income countries to grow between 2.1 and 2.3 percent in 2010 followed by 1.9 to 2.4 percent growth in 2011.
-- Demand from developing countries will have half the share in global demand from 2010-2012.
-- The East Asia and Pacific region is expected to grow by 8.7 percent in 2010 and 7.8 percent in 2011. Regional and Chinese growth are forecast to slow to an average 7.8 and 8.4 percent respectively over the next two years.
-- The recovery in Europe and Central Asia is projected at 4.1 percent in 2010, 3.0 percentage points slower than the region’s pre-crisis five-year average.
-- Output in Latin America and the Caribbean region is forecast to expand by around 4.3 percent each year over 2010-2012.
-- The regional recovery for the Middle East and North Africa is projected to strengthen, with growth firming from 4.0 percent in 2010 to 4.3 and 4.5 percent in 2011 and 2012, respectively, driven by oil prices and economic activity in the European Union.
-- In South Asia, slower global growth, tighter financial conditions, and a consolidation of fiscal policy in some countries in the region is expected to cause growth to average 7.7 percent over 2010-2012, compared with rate of 9.2 percent in 2007.
-- The outlook for the Sub-Saharan Africa region is forecast to grow by 4.5, 5.1, and 5.4 percent respectively over 2010–2012, up from an estimated 1.6 percent in 2009.The growth is driven by historically high commodity prices and stronger external demand.
Concerns over global recovery:
-- Reduced international capital flows, high unemployment, and spare capacity exceeding 10 percent in many countries are the main hurdles that can hamper the recovery, according to the report. Expensive credit and decline in investment and growth as a result of continued rising of sovereign debt are the main concerns.
-- The World Bank report assumed that the actions of IMF and European institutions will prevent the crisis while making the projections. But, it cautioned on developing countries having close trade and financial links with high-income countries facing the impact of debt crisis.
-- Irrespective of the debt situation taking shape in Europe, a second round financial crisis cannot be excluded in the countries of developing Europe and Central Asia according to the report. Banking-sector solvency may be threatened due to rising non-performing loans in a slow recovery and high levels of short-term debt.
-- Financing gaps will continue to impact many developing countries with private capital flows to developing countries are forecast to recover only modestly from $454 billion (2.7 percent of the developing world’s GDP) in 2009 to $771 billion (3.2 percent of GDP) by 2012, compared with $1.2 trillion (8.5 percent of GDP) in 2007. The financing gap of developing countries is projected to be $210 billion in 2010, declining to $180 billion in 2011, down from an estimated $352 billion in 2009.
-- Over the next 20 years, the fight against poverty and financial inclusion could be hampered if countries are forced to cut productive and human capital investments because of lower development aid and reduced tax revenues.
To contact the editor, e-mail: