Monday, June 22, 2009

World Bank Warns On Emerging GDP

By JUDITH BURNS WASHINGTON -- Developing countries' net private capital inflows fell 41% last year and will be cut nearly in half this year, the World Bank said in a report that offers little hope that the countries will provide the spark for the global economic engine. Meanwhile, European Central Bank Gov. Jean-Claude Trichet said Sunday that the ECB expects the global economy to moderate its slide over the remainder of the year and resume climbing in 2010. The World Bank estimated in its annual development-finance review that gross domestic product in developing countries will grow just 1.2% this year, well off the 8.1% pace in 2007 and the 5.9% gain in 2008. The report, issued at a conference in Seoul, projects a 2.9% contraction in global GDP this year, as rich countries contract by 4.5%. "The crisis of the past two years is having dramatic effects on capital flows to developing countries, and the world appears to be entering an era of lower growth," World Bank Chief Economist Justin Lin said. The report said net flows of private capital to developing countries fell to $707 billion in 2008 from $1.2 trillion in 2007, and it projects they will fall an additional 48% this year to $363 billion. "Net private capital flows will be insufficient to meet the external financing needs of many of these [developing] countries, and in view of the intense fiscal pressures triggered by the crisis, the prospects for large increases in aid flows are dim," the report said. "The bulk of new commitments by international financial institutions will go to middle-income countries in 2009, and workers' remittances to low-income countries are projected to decline by 5%. Such sobering facts reinforce the importance of broad international agreement to mobilize the necessary resources to achieve" United Nations' goals for alleviating world poverty. On a regional basis, the report offered the following outlook for developing countries: East Asia and the Pacific: China's fiscal-stimulus efforts should spur a recovery in the region, starting later this year, with regional GDP rising 6.6% in 2010 and 7.8% in 2011. Europe and Central Asia: GDP is projected to fall 4.7% in 2009, and grow by just 1.6% in 2010. Latin America and the Caribbean: Regional GDP is seen falling by 2.3% this year, then growing about 2% in 2010. Middle East and North Africa: While less directly affected by the global credit crunch, growth in the region is expected to be cut roughly in half this year, to 2.1%, before accelerating to 3.8% in 2010 and 4.6% in 2011. South Asia: GDP is expected to grow by 4.6% this year, followed by 7% next year and 7.8% in 2011. Sub-Saharan Africa: Sharp declines in remittances and export prices will take a heavy toll on a region that was growing at a 5.7% annual rate in the past three years, with growth slowing to 1% in 2009 and 3.7% in 2010. In Paris, Mr. Trichet said in an interview with French radio station Europe 1 that the Iran conflict means "there is clearly an additional risk for the international economy," but that Iran isn't the only area of instability in the world. That is all the more reason to proceed quickly with the program put together by the Group of 20 countries in April to deal with the global economic crisis and regulatory reform, he said. He repeated that the ECB expects the global economy to recover next year. "We expect a slowing in the decline of activity," Mr. Trichet said. "The first quarter was very bad; the following quarters will be less bad, until the end of the year when one can expect pretty much stability in terms of activity," he added. "We should record a resumption of positive activity over the course of next year." But Mr. Trichet cautioned that governments must gradually address their bloated budget deficits as the economic recovery gathers pace next year. —A.H. Mooradian in Paris contributed to this article. Write to Judith Burns at

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