The WB that released Global Economic Prospects (GEP) 2012 on Wednesday has mainly argued that risks emanating from Eurozone debt crisis and weakening growth of developed economies and its impact on developing markets will hit exports and remittances income, posing set back to the growth rate.[break]
However, the GEP 2012 forecasts that Nepal´s economy could grow slightly better by 3.6 percent in 2012/13 and 4 percent in 2013/14.
The report has suggested the developing countries to prepare themselves for further downside risks, as Eurozone debt problems and weakening growth in several big emerging economies are dimming global growth prospects.
Referring to such looming problems, the report has forecast gross domestic production (GDP) in South Asia to remain low at 6.6 percent in 2011/12, from 9.1 percent of a year ago. The WB has attributed the region´s low growth outlook to slowdown in India in the second half of the year as well as external headwinds.
“Exports are negatively affected by weaker foreign demand and remittances have grown only modestly,” the report says, adding that the region suffers mainly from sharp downturn in domestic demand due to rising borrowing costs, high input prices, worries over the global slump, and delay in reforms.
The report further projects the region´s GDP to grow by still low 5.8 percent in 2012/13, before strengthening to 7.1 percent in 2013/14. “High inflation and fiscal deficits remain concerns going forward,” it adds.
The WB has lowered its growth forecast for 2012 to 5.4 percent for developing countries and 1.4 percent for high-income countries (-0.3 percent for the Euro Area), down from its June estimates of 6.2 and 2.7 percent (1.8 percent for the Euro Area), respectively.
Global growth is now projected at 2.5 and 3.1 percent for 2012 and 2013 respectively.
“Slower growth is already visible in weakening global trade and commodity prices,” states the report, referring that global exports of goods and services in 2011/12 are expanding at just 6.6 percent, which is a sharp drop from 12.4 percent growth rate recorded in 2010/11.
“Developing countries need to evaluate their vulnerabilities and prepare for further shocks, while there is still time,” a statement quotes Justin Yifu Lin, the WB´s Chief Economist and Senior Vice President for Development Economics as saying.
To prepare for that possibility, the report has suggested the developing countries to pre-finance their budget deficits, prioritize spending on social safety nets and infrastructure, and stress-test domestic banks.
“An escalation of the crisis would spare no one. Developed and developing country growth rates could fall by as much or more than in 2008/09,” the report says, giving high importance to contingency planning.
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