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World Bank warns developing world to prepare for shocks

2012-01-18 12:09:59

The World Bank has warned developing countries they need to be prepared for

shocks as global economic growth slows.

The organisation has slashed its growth forecasts, and is now predicting a 0.3%

contraction for the eurozone in 2012.

"Developing countries need to evaluate their vulnerabilities and prepare for

further shocks, while there is still time," said World Bank chief economist

Justin Yifu Lin.

"Escalation of the crisis would spare no-one," the report's author warned.

Referring to the eurozone crisis and its potential to impact growth in rich and

poor countries, Andrew Burns said:

"Developed and developing-country growth rates could fall by as much or more

than in 2008/09.

Developing world needs to prepare for global economic slowdown says World Bank

"The importance of contingency planning cannot be stressed enough."

The World Bank is predicting growth of 5.4% for developing countries in 2012

and 1.4% for high income countries, down from its forecasts of 6.2% and 2.7%

respectively in June.

The World Bank's Global Economics Prospects report says that slower growth is

already visible in global trade and commodity prices.

It said that declining commodity prices were better news for the developing

world, although food security for the poorest countries was still a major

concern.

Food prices are down about 14% from their peak in February 2011.

Analysis

image of Andrew Walker Andrew Walker BBC World Service Economics correspondent

The World Bank has a warning for the developing world: prepare for the worst.

In its Global Economic Prospects, the bank does forecast continued growth, but

warns there is a risk of a worse outcome: of another crisis as bad as what

followed Lehman in 2008.

So could the developing countries cope? After all, they weathered the previous

global recession relatively well. The Bank's view is that they, for the most

part, are in better in shape than the rich nations.

Some have scope to boost government spending and should identify now what would

most help development and the poor. But others don't have that room for

manoeuvre and will need to make cuts if there is a prolonged downturn.

Andrew Burns, manager of global macroeconomics at the World Bank, told the BBC

there was a danger that the downturn could be longer lasting than the one which

followed the collapse of Lehman Brothers in 2008.

"This time, going in, [developing countries] will be in much better condition

than high income countries, but that said, we are concerned," he said.

"They are going to be operating in a situation where the high income countries

aren't going to be able to offer the same type of counter fiscal policy and the

same type of support to the financial system as they did in 2008/9."

The World Bank warns that the sovereign debt crisis in the eurozone and the

slow growth in developing countries could "reinforce one another" causing even

slower growth than predicted.