by Piyaporn Hawiset
17 December 2002
A sluggish global economic outlook, with slower growth in the next 12-18 months than previously expected, would impede poverty reduction in developing countries, according to a World Bank report. Efforts to remove barriers to trade and investment that hurt poor people in developing countries were becoming increasingly urgent, it said. According to the report, titled Global Economic Prospects and the Developing Countries 2003: Investing to Unlock Global Opportunities, uncertainty among global financial markets has sapped the momentum of the modest recovery that began in late 2001. The report outlined steps that both rich countries and poor countries could take in the currently uncertain environment to increase growth rates and speed poverty reduction in developing countries.
After exceptionally slow growth in 2001 and 2003, global GDP was expected to rise by 2.5 per cent in 2003, higher than the previous two years but still well below the 3.8-per-cent expansion recorded in 2000 and significantly below long-term potential growth rates, the report said. The report warned that the global rebound could quickly lose momentum and that there was a significant risk that the world could slip back into recession.
"The recovery has been much more hesitant and uneven than we had expected," said World Bank chief economist and senior vice president for Development Economics Nicholas Stern.
According to the latest forecasts, the economies of high-income countries were expected to grow by about 2.1 percent in 2003. On average, developing countries were seen growing at a considerably faster 3.9 per cent. But the average masks wide regional differences, with East Asia leading the pack at 6.1 per cent.
Other regions were expected to grow by less than 4 per cent, with Latin America managing just 1.8 per cent. Outside of Asia and Eastern Europe, growth in most developing countries was too low for a reduction in poverty.
The report said factors suppressing global growth in the near term included high levels of corruption in developing countries, waning consumer confidence, high debt levels in the face of a weak equity market, and the fallout from corporate financial scandals in the US, continuing investor worries over imbalances in the Japanese banking system, and over-investment in telecoms and other high technology in Europe, as well as concerns about debt problems in Latin America.
The sagging global economy had reduced private capital flows to developing countries. Net commercial bank lending had turned negative, and foreign direct investment flows to developing countries had fallen since their peak in 1999. Private foreign investment in infrastructure was now down 25 per cent from 1997 in developing countries. Investors were more wary of corruption in developing countries, long-term projects; accounting scandals in industrial countries and slower growth in East Asia, Russia and Brazil had reduced investment demand.