World Bank June 2012 Report

The World Bank has launched its six-monthly/June 2012 report on the world economy in Brussels on June 18, 2012.

http://go.worldbank.org/IQL6SHFVQ0

ACP Secretariat and the Ambassador of Indonesia gave their views on the report. The perspectives for the developing countries are very positive, according to Arif Havas Oegrosseno, Ambassador of the Republic of Indonesia and Obadiah Mailafia, Chef de Cabinet, ACP Secretariat and Former Deputy Governor of Nigerian Central Bank.

The EU's perspectives are not positive (Björn Döhring, Head of Sector - Forecast and Economic Situation Unit, DG ECFIN and Carsten Brzeski, Senior Economist, ING).

The report (Andrew Burns, Manager of the Global Macroeconomic Trends Team, World Bank Group) says that more growth in developing countries is not possible due to capacity constraints: " Capacity utilization may become a binding constraint in major developing countries …: Developing countries have been important drivers of global growth in the post-crisis period, generating about 50 percent of the increase in global import demand and GDP growth. While they are expected to continue to play an important role, many of the larger and faster growing economies are close to or above potential, which suggests that they will not be able to drive global growth as before.. Capacity constraints are generating inflationary pressures in either goods or asset markets, or raising current account imbalances.

GDP in developing countries is projected to expand 5.3 percent in 2012. Weak high-income demand, high oil prices, weak capital flows, rising capital costs and capacity constraints in several large middle-income countries will conspire to keep growth from exceeding 6 percent in each of 2013 and 2014.

High-income GDP is expected to expand only 1.4 percent this year, weighed down by market jitters, banking-sector deleveraging and ongoing fiscal consolidation. As these pressures ease, growth is projected to firm to what will be a still modest 1.9 and 2.3 percent pace in each of 2013 and 2014. The Euro zone is projected to contract by 0.3 percent this year, returning to positive territory with a weak 0.7 percent growth in 2013 and 1.4 percent in 2014.

Overall, global GDP is projected to increase 2.5 percent in 2012, with growth accelerating to 3.0 and 3.3 percent in 2013 and 2014.

Developing country budget deficits are 2.5 percent of GDP higher than in 2007, suggesting they would be less able to respond with fiscal stimulus in the event of a serious crisis.

Their external vulnerability has increased as well. Developing country current account deficits have deteriorated by an average of 2.8 percent of GDP, with most of the deterioration having been among oil importing and non-oil commodity exporters. Should international financing not be available in the event of a crisis, a lack of foreign funds might force many countries to cut back on government spending and/or imports.

in addition, the very rapid expansion of credit in past years in some countries may have increased their vulnerability either to tighter international conditions or domestic shocks. In Brazil, China and Nigeria, for example, loan-to-GDP ratios increased by more than 10 percentage points between 2005 and 2010. Loan performance could deteriorate markedly in these countries in the face of slowing growth, heightened risk aversion and restricted access to finance.

In the immediate run, the new tensions pose the most serious potential risk for developing countries, particularly those with strong reliance on worker remittances, tourism, commodities or those with high levels of short-term debt or medium-term financing requirements.

• Remittances to developing countries could decline by 5 percent or more, representing as much as a 3 or more percent decline in GDP among countries heavily dependent on remittances.
• Tourism, especially from high-income Europe, would be impacted with significant repercussions for countries in North Africa and the island economies of the Caribbean.

Even in the absence of a full-blown crisis, elevated fiscal deficits and debts in high-income countries and the very loose monetary policies they are pursuing suggests that for the foreseeable future, the external environment for developing economies is likely to remain characterized by volatile capital flows and heightened investor uncertainty.

As a result, sharp swings in investor sentiment and financial conditions will continue to complicate the conduct of macroeconomic policy in developing countries. In these conditions, policy in developing countries needs to be less reactive to short-term changes in external conditions, and more responsive to medium-term domestic considerations. A return to more neutral macroeconomic policies would also help developing countries reduce their vulnerabilities to external shocks, by rebuilding fiscal space, reducing short-term debt exposures and recreating the kinds of buffers that allowed them to react so resiliently to the 2008/09 crisis

The Worldbank is a developing financing institution, 'looking from the view of developing countries'. So I asked if they also inform the stakeholders in the developing countries.

The answer was that they have 'budget constraints' .

So unfortunately these discussions will only take place in Brussels, EU and Washington.

Joyce van Genderen-Naar, ACP Civil Society Forum Global Legal Advisor, Brussels lawyer, author and lecturer ACP-EU-OCT cooperation;

ACP Civil Society Forum, the official platform for ACP civil society organizations established in 2001 to address issues relating to ACP-EU Cooperation. The Forum is a democratic, transparent and inclusive coalition of not-profit ACP civil society organisations working on issues relating to ACP-EU development cooperation.

ACP Civil Society Forum:http://acpcsforum.igloocommunities.com

ACP CSF is registered in the EU Transparency register : http://europa.eu/transparency-register

ACP CSF is registered in the database of the European Commission DG Trade Civil Society Dialogue: http://trade.ec.europa.eu

ACP Civil Society Forum is selected as observer to the European Commission CAP Advisory Group meetings on International Aspects of Agriculture http://ec.europa.eu/agriculture/consultations/advisory-groups/cap/index_en.htm

ENDS

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