Solid Growth Forecast for Global South, But Threats Loom

• by Jim Lobe (washington)
• Tuesday, June 07, 2011
• Inter Press Service

Of particular concern are a worsening of the unrest in the Middle East and North Africa that increased the global price of oil nearly 25 percent between December and April and a poor harvest during the 2011/2012 year that could exercise a similar effect on food prices.

'Further increases in already-high oil and food prices could significantly curb economic growth and hurt the poor,' warned Justin Yifu, Lin, the Bank's chief economist and senior vice president for development economics.

In addition, a failure by high-income countries to make substantial progress in addressing their fiscal problems could reduce demand for developing-country exports and reduce the availability of credit that developing countries need to sustain growth, according to the report.

The latest GEP, which is published semi-annually, predicts that global gross domestic product (GDP) will grow 3.2 percent this year and 3.6 percent in both 2012 and 2013.

But growth will be considerably slower in the high-income countries due in large part to continuing efforts to reduce fiscal deficits and the after-effects of the earthquake and tsunami in Japan - 2.2 percent in 2011, rising to 2.7 percent and 2.6 percent, respectively, in 2012 and 2013.

Developing countries, on the other hand, will see their average combined growth average about 6.3 percent over the same three years, down slightly from the 7.3 percent they achieved in 2010, but considerably higher than the 1.9 percent growth rate they experienced in 2009 in the wake of the global financial crisis that erupted in mid-September 2008, and that precipitated the greatest plunge in international trade flows since the Great Depression.

As in past years, East Asia and the Pacific region is expected to log the highest growth rates — from 9.3 percent this year to 8.8 percent in 2013 — followed by South Asian economies, led by India, which are expected to grow by 7.5 percent this year to 7.9 percent in 2013.

But sub-Saharan Africa, led by its major oil exporters, should also experience solid growth — 5.1 percent this year, rising to 5.7 percent in both 2012 and 2013.

Weaker growth is expected in Latin America and the Caribbean — 4.5 percent this year, declining to four percent by 2013 — and in the Middle East and North Africa, which this year is likely to grow only 1.9 percent before recovering to 3.5 percent in 2012 and 4.0 percent in 2013, according to the report.

Overall, developing countries, which have led the global recovery from the 2008-09 financial crisis, have largely recovered from its negative effects, the report said.

Industrial production in developing countries, according to the report, is now 20 percent higher than its pre-crisis level. Demand for their exports and foreign investment and other capital flows to developing countries have also largely recovered.

Indeed, stronger growth in the major developing economies has contributed to a sharp increase in the price of metals and oil over the past six months.

According to the report, China consumed more than 40 percent of global metal supplies — more than all the member states of the Organisation for Economic Cooperation and Development (OECD) combined - in 2009. It also found that non-OECD countries now account for 47 percent of global demand for crude oil.

Higher energy prices have in turn increased the costs of fertiliser and other agricultural inputs, according to the report. It found that higher energy prices explain most of the 58 percent increase in agricultural prices since the 1990s.

Combined with poor harvests and low inventories in some areas, as well as growing demand for biofuels, especially in the U.S. and Europe, these factors resulted in a rise in international food commodity prices at the end of 2010 and early 2011 to levels just below the peaks reached during the 2008 food crisis.

The worst effects of the increase in international food prices, however, were mitigated to some extent by the fact that local food prices did not increase as much. The report found that, while 2010-11 was a bad crop year for several major exporters of internationally traded foods, it was a good year in many developing countries, particularly in Africa where a successful maize harvest actually drove down local prices.

The GEP's estimates of global growth could be overturned by a number of potential risks, including the international prices of both fuel and food, according to the report. The estimates, for example, assume that oil prices will average 107 dollars through 2011 and drift down to 96.7 dollars by 2013.

If political turmoil in the Middle East and North Africa continues, for example, oil prices, which have declined somewhat in recent weeks, could shoot back up.

If prices were to increase by 50 dollars for a year, for example, global GDP could be reduced by between 0.5 and 1.0 percent, with oil- importing countries naturally bearing the brunt of the cost, according to the report. Such an increase would also result in a 16- percent hike in food prices, it said.

Yet another risk over the medium term is posed by the market reaction to the fiscal situation in high-income countries, particularly in Europe, which, if sufficiently serious, could also disrupt growth prospects in developing countries.

© Inter Press Service (2011) — All Rights ReservedOriginal source: Inter Press Service

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