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The World Bank warns of the global economic slowdown on the Caribbean and other developing countries.
The World Bank has warned that the effects of the global economic slowdown are likely to be more pronounced in the Caribbean and other developing countries in 2009. In its Global Economic Prospects 2009 report, the Washington-based financial institution said recent adverse trends are expected to intensify, given a sharp decline in investment growth, weaker exports and imports and in some cases, “still-escalating global economic prospect”.
The bank is, therefore, projecting growth in the gross domestic product (GDP) of developing countries to decline to 4.5 per cent in 2009, more than three percentage points below the average of the past five years.
No escape
“No region or country is likely to escape this growth recession,” the bank warned.
It further cautioned that recovery in 2010 was predicated upon a relatively quick improvement in financial and growth conditions among the high-income countries – a prospect which the Bank said was currently subject to “a high degree of uncertainty”.
However, the World Bank said growth outcomes for 2009 would vary significantly across developing countries and regions, depending on “their reliance on external flows and bank lending to finance investment, trade links to deeply affected high-income countries, direct and indirect exposures to the sub-prime mortgage crisis, and the degree of participation of foreign banks in the domestic financial sector.”
What is more certain, the bank said, was the fact that the global financial crisis had dimmed short-term prospects for the Caribbean and other developing countries.
“People in the developing world have had to deal with two major external shocks – the upward spiral in food and fuel prices followed by the financial crisis – which has eased tensions in commodity markets but is testing banking systems and threatening job losses around the world,” said Justin Lin, chief economist and senior vice-president for development economics at the World Bank.
“Urgent steps are needed to help reduce fallout from the crisis on the real economy and on the poorest, including through projects that build better roads, railways, schools, and health care systems,” he added.
Increased support
In light of the crisis, the bank said it was prepared to increase its support for developing countries, including through new commitments of up to US$100 billion over the next three years, as well as in the form of facilities for trade finance, banking recapitalization, and for privately-funded infrastructure projects facing financial distress.
In the interim, Uri Dadush, director of the World Bank’s Development Prospects Group, urged policymakers to carefully monitor their banking sectors and be prepared to enlist external support to shore up currencies and banking systems.
“Given the expected decline in global trade, both developed and developing countries need to resist the temptation to resort to protectionism, which would only prolong and deepen the crisis,” he said.
The bank said the collapse in global growth has reversed the surge in commodity prices that characterised the first half of the year, with prices of virtually all commodities falling sharply since July.
It said while real food and fuel prices in developing countries have dropped considerably, they remain high relative to the 1990s, stating that “the social turmoil and human crises they triggered are still reverberating”.
Overall, the bank said higher food and fuel prices have cost consumers in developing countries about US$680 billion in extra spending in 2008 and pushed an additional 130-155 million people into poverty. Source: Gleanerextra.com
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