The GDP growth in developing countries is likely to slide to 6.5 per
cent in 2008, down from 7.8 per cent recorded in 2007, a World Bank
report says.
Global Development Finance 2008 also predicts a slowdown in world GDP
growth from 3.7 per cent in 2007 to 2.7 per cent in 2008.
In the wake of financial turmoil in high income countries and amidst
high food and energy prices, developing countries' growth is easing
but is still robust.
Prices of both energy and internationally-traded food increased 25 per
cent in nominal terms over the second half of 2007. Grain prices,
however, rose the most during the first months of 2008; they were
twice as costly as a year earlier.
High food and energy prices are now the dominant force behind
increased inflation across developing countries-and worryingly, they
are hitting the poorest people the hardest.
GDF report says private capital flows to emerging markets, which hit a
record one trillion dollars in 2007, are also expected to drop to
around 800 billion dollars by 2009, which would still be the second
highest level ever.
"Strong growth in the developing world is certainly helping to offset
the sharp slowdown in the US," said Uri Dadush, Director of World
Bank's Development Prospects Group. "But at the same time, rising
global inflationary pressures - especially high food and energy prices
- are hurting large segments of the poor around the world." Developing
countries' growth in recent years has been powered in part by
expanding capital flows, including by foreign banks that have expanded
their presence in developing countries through acquisitions and the
establishment of local affiliates. As of end-June 2007, foreign claims
on developing-country residents held by major international banks
stood at 3.1 trillion dollars, up from 1.1 trillion dollars at the end
of 2002.
"The presence of foreign banks in developing countries expands access
to credit and as well as financial services, which can spur efficiency
and innovation in domestic banks," said lead GDF author Mansoor
Dailami. "However, the ripple effect of shocks from the US and
European markets to certain developing-country financial markets
highlights the need for better and more coordinated financial
regulation, liquidity provision, and macroeconomic management." The
report warns that countries with heavy external financing needs are
potentially most vulnerable to a credit runch.
Vulnerability could be acute in those developing countries where
private debt inflows into the banking sector have contributed to a
rapid expansion of domestic credit, which stokes inflationary
pressures.
The bulk of private capital flows to developing countries go to just a
few big economies, among them the so-called BRICs - Brazil, Russia,
India and China.
The poorest nations, meanwhile, remain reliant upon official aid,
which further declined in 2007. Net official development assistance by
members of the OECD's development assistance committee totalled 103.7
billion dollars in 2007, down from a peak of 107.1 billion dollars in
2005, the report says
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