The world economy is moving from a post-crisis bounce-back phase of the recovery to slower but still solid growth this year and next, with developing countries contributing almost half of global growth, says the World Bank’s latest Global Economic Prospects 2011 launched today (13 Jan).
The World Bank estimates that global GDP, which expanded by 3.9% in 2010, will slow to 3.3% in 2011, before it reaches 3.6% in 2012. Developing countries including Sri Lanka grew 7% in 2010, and will grow 6% in 2011 and 6.1% in 2012, WB estimated.
‘With the GDP growing at a rate of 7.1% in 2010, Sri Lanka showed good performance’, said Andrew Burns, Manager of Global Macroeconomics in the Development Prospects Group joining a discussion held today at the World Bank office, Colombo.
The developing countries will continue to outstrip growth in high-income countries, which is projected at 2.8% in 2010, 2.4% in 2011 and 2.7% in 2012, the report said.
"The Sri Lankan government’s fiscal policy is appropriate. The World Bank is of the view that the country has to make sure the budget deficit is not out of control, stated Susan Razzaz, Senior Country Economist for the World Bank mission in Sri Lanka, adding the World Bank appreciates government’s actions.
The World Bank report said 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 the bulk of the increase in inflows.
Foreign direct investment to developing countries rose a more modest 16% in 2010, reaching $410 billion after falling 40% in 2009. An important part of the rebound is due to rising South-South investments, particularly originating in Asia.
The World Bank noted that the global recovery has gained strength, matured and broadened to include more countries and more components of demand. This dynamic appears to be well established, particularly among developing countries.
Burns said that there are three major risks that are threatening global recovery.
The first lies in the financial turmoil in high-income countries, especially in the euro zone. The second is the question of how to deal with surging capital inflows to the developing countries. The third risk, as Burns pointed out, is the food crisis.
According to the report, current relatively high food prices are having a mixed impact on low-income countries.
In dealing with those risks and challenges, the World Bank suggested the high-income countries that policies should be taken to restore market confidence by implementing credible fiscal consolidation packages that support structural reform and conclude the financial-sector reform agenda to avoid future crisis.
For the developing countries, in general, the macroeconomic policy needs to tighten. With new exploration and new techniques, World Bank expects oil prices to remain constant in real terms in coming year, Burns said.