Friday, January 14, 2011

Developing countries leading global recovery

According to the latest Global Economic Prospects 2011, global GDP (measured at 2005 market prices and exchange rates), which expanded by 3.9% in 2010, will slow to 3.3% in 2011, before it reaches 3.6% in 2012. Developing countries are expected to grow 7% in 2010, 6% in 2011 and 6.1% in 2012. They will continue to outstrip growth in high-income countries, which is projected at 2.8% in 2010, 2.4% in 2011 and 2.7% in 2012. The report notes that strong developing country domestic demand is leading the world economy but persistent financial sector problems in some high-income countries might threaten growth.

It notes that foreign direct investment (FDI) to developing countries  rose a more modest  16% in 2010, reaching  $410 billion after falling 40% in 2009. An important part of the rebound is due to rising South-South investments, particularly originating in Asia.

In many economies, dollar depreciation, improved local conditions, and rising prices for goods and services means that the real price of food has not risen as much as the U.S. dollar price of internationally traded food commodities. But, the report cautions that double-digit price increases of key staples in the past few months are pressuring households in  countries with an already-existing high burden of poverty and malnutrition. And, if global food prices rise further along with other key commodities, a repeat of the conditions in 2008 cannot be excluded.

The main short-term risks to the global economy include:

  • the possibility of further market turmoil and contagion in Euro area sovereign debt markets;
  • the possibility that very low interest rates in high-income countries induce a second boom-bust cycle among one or more developing countries; and
  • the possibility that rising commodity prices threaten the recovery and or poverty reduction in developing countries.

About South Asia’s growth prospects, the report notes:

“The South Asia region is projected to post GDP growth of 7.9% on average over the 2011-2012 fiscal years, buoyed by vibrant growth in India. This compares with estimated growth of 8.7% in fiscal year 2010. The region benefited from aggressive demand stimulus measures, a revival in investor and consumer sentiment, and a resumption of capital inflows. A recent move toward tighter policy will likely need to be pursued further, given the region‟s high fiscal deficits (the largest among developing regions), high inflation and deteriorating current accounts.”

South Asia’s real GDP growth accelerated to an estimated 8.7 percent in FY2010-11 from 7.0 percent in FY2009-10, buoyed by very strong growth in India, which represents 80 percent of regional GDP. Excluding India, regional GDP growth (on a fiscal year basis) firmed, but to a more modest 5.1 percent from 4.3 percent the year before. On a calendar year basis, GDP for the region as a whole is estimated to have expanded 8.4 percent in 2010 after 5.3 percent in 2009, and to 4.8 percent in 2010 from 3.8 percent in 2009 if India is excluded.

In 2012, India, Pakistan and Bangladesh are  expected to grow at 8.7%, 3.8%, and 6.3%, respectively. Nepal is expected to grow at 4% in 2012.

Forecast summary, 2010-2012
Indicator 2010 2011 2012
South Asia
Real GDP 8.7 7.7 8.1
Real GDP (PPP) 8.7 7.7 8.1
Exports 7.4 8.8 10.3
Imports 6.2 9.4 10.3
Current account (%GDP) -3.4 -2.9 -2.9
Developing Countries
Real GDP 7 6 6.1
Real GDP (PPP) 7.1 6.2 6.4
Exports 19.9 9.1 10.6
Imports 22 9.3 10
Current account (%GDP) 1.3 1 0.9
Real GDP 3.3 3.7 4
Exports 6.4 5.6 7.3
Imports 6.8 6.3 6.9
Annual percentage change, unless indicated otherwise; 2011 and 2012 are estimates; table sourced on 2011-01-14