By Judith Ugwumadu | 11 June 2014
Developing countries are headed for a third consecutive year of disappointing growth following a weak start to the year, the World Bank said yesterday as it cut its forecast for 2014.
Growth across the different regions – Asia and the Pacific, Europe and Central Asia, Latin America and the Caribbean, and the Middle East and Africa – is predicted to be 4.8% this year, down from the 5.3% that was predicted in January.
Recent setbacks have included bad weather in the US, the political crisis in Ukraine, rebalancing in China, political strife in several middle-income economies, slow progress on structural reform and capacity constraints, all of which contributed to relatively slow economic growth. After a sluggish 2014, the bank expects some growth to pick up to 5.4% next year and 5.5% in 2016, although its effects are likely to be partial.
World Bank president Jim Yong Kim said: ‘Growth rates in the developing world remain far too modest to create the kind of jobs we need to improve the lives of the poorest 40%.
‘Clearly, countries need to move faster and invest more in domestic structural reforms to get broad-based economic growth to levels needed to end extreme poverty in our generation.’
The bank noted that national budgets of developing countries had deteriorated significantly since 2007. In almost half of developing countries, government deficits exceed 3% of gross domestic product, while debt-to-GDP ratios have risen by more than 10 percentage points since 2007.
Vulnerabilities persist in several countries that combine high inflation and current account deficits (Brazil, South Africa and Turkey). The risk here is that the recent easing of international financial conditions will once again serve to boost credit growth, current account deficits and associated vulnerabilities, warned the bank.
It added that fiscal policy needed to tighten in countries where deficits remain large, including Ghana, India, Kenya, Malaysia and South Africa. In addition, the structural reform agenda in many developing countries, which has stalled in recent years, needs to be reinvigorated in order to sustain rapid income growth.
Andrew Burns, the World Bank’s lead economist, said: ‘Spending more wisely rather than spending more will be key. Bottlenecks in energy and infrastructure, labour markets and business climate in many large middle-income countries are holding bank GDP and productivity growth.
‘Subsidy reform is one potential avenue for generating the money to raise the quality of public investments in human capital and physical infrastructure.’
Acknowledging that the recovery in high-income countries was gaining momentum, the bank said the acceleration would be an important impetus for developing countries, in particular stronger growth in the US and Europe. Growth in high-income countries is projected to expand by 1.9% in 2014, accelerating to 2.4% in 2015 and 2.5% in 2016.
