Economic growth in developing countries set to surge in next five yeas, World Bank suggests

News - Banking

Written by Ray Clancy

Wednesday, 29 September 2010 09:23

Developing economies will account for 50% of global growth and surpass the economic size of developed nations by 2015, according to the World Bank.

While the rich world puts its house in order, developing countries are becoming a new engine of global growth and a pulling force for advanced economies, World Bank economists say in a new book.

Already almost half of all global growth is coming from developing countries, according to The Day After Tomorrow; a Handbook on the Future of Economic Policy in the Developing World written by Otaviano Canuto and Marcelo Giugale.

‘Developing countries have come to the global economy’s rescue. They are the new locomotives of growth which will move global growth forward while high income countries remain stagnant,’ said Canuto, World Bank vice president for poverty reduction and economic management (PREM).

The book estimates that growth in developing countries is estimated to reach 6.1% in 2010, 5.9% in 2011, and 6.1% in 2012, while corresponding figures are 2.3%, 2.4%, and 2.6% for high income countries.

This is down to faster technological learning, larger middle classes, more South to South commercial integration, high commodity prices, and healthier balance sheets that will allow borrowing for infrastructure investment.

‘The economic horizon of the developing world is promising. The rebalancing of global growth toward a multiplicity of engines will give the developing countries new relevance. It will also change their policy agendas. On average, economic management will be stronger, governments will be better, and the beginning of the end of poverty will be within reach,’ said Giugale, the World Bank’s director for poverty reduction and economic management in the Latin America and Caribbean Region.

The book notes that developing countries should take advantage of their relatively healthier fiscal positions to foster inclusive growth. This means better targeting of social programs, more emphasis on giving people the same opportunities, and business environments that facilitate the creation of formal jobs.

Other upcoming, developing-country trends identified in the book include the recovery of remittances, an increase in South to South trade, rising investment by sovereign wealth funds, more conservative debt management, and progress by many governments in gaining public trust.

It says regions like East Asia, Latin America, South Asia and, soon Africa, have the potential to turn into the newly developed. In Sub-Saharan Africa, the world’s poorest region, prospects for faster growth are good as long as there is a sustained commitment to sensible policies. These will need to address the challenges of infrastructure, job creation, governance and shrinking aid.

East Asia and the Pacific are leading the world out of the crisis, but still needs to make progress on economic integration and climate change. In China some ‘rebalancing’ is needed through the expansion of domestic consumption and the service sector. Middle income countries like Indonesia, Malaysia, the Philippines and Thailand, need to move up into knowledge and innovation based markets, while trade facilitation will be the key for low income countries like Cambodia, Lao PDR, and Vietnam.