Developing world faces domestic challenges, as global economy stabilises

Sluggish growth in Nepal and Pakistan, slower growth in Sri Lanka and Bangladesh has pulled the GDP growth in South Asia to 4.8 per cent in 2012, according to a report of the World Bank.

Growth in the developing world will remain solid, albeit slower than the frenetic growth rates seen during the pre-crisis boom period, as developing countries grapple with home-grown challenges brought on by capacity constraints in many middle income countries, according to the World Bank’s latest Global Economic Prospects, released today.

Along with the world economy, regional GDP growth is projected to pick up to 5.2 per cent in 2013, before accelerating to six per cent and 6.4 per cent in 2014 and 2015, in line with strengthening external demand, normal monsoons, and a gradual pickup in investment spending. Growth in India is projected to rise to 5.7 per cent in the 2013 fiscal year, and firm to 6.5 per cent and 6.7 per cent in fiscal year 2014 and fiscal year 2015, respectively.
Continued progress in fiscal consolidation and in reducing structural constraints will determine the pace of recovery. Domestic risks dominate, including a possible derailing of reforms, and weaker than expected monsoon rains.
For high-income countries, fiscal consolidation, high unemployment and still weak consumer and business confidence will keep growth this year to a modest 1.2 per cent, firming to two per cent in 2014 and 2.3 per cent by 2015. Economic contraction in the Euro Area is estimated to be 0.6 per cent for 2013, compared with the previous projection of 0.1 per cent. Euro Area growth is expected to be a modest 0.9 per cent in 2014 and 1.5 per cent in 2015.
Global trade, after contracting for several months, is expanding once again, but trade is expected to expand only four per cent in 2013, well off the pre-crisis pace of 7.3 per cent.
Part of the resilience of global trade, despite the weakness in high-income economies, has been due to rapid expansion in South-South trade. More than 50 per cent of developing country exports now go to other developing countries. Even when China is excluded, South-South trade has been growing at an average rate of 17.5 per cent a year over the past decade, with manufacturing trade expanding as rapidly as commodities trade.

Global GDP is expected to expand about 2.2 per cent in this year and strengthen to 3.0 percent and 3.3 per cent in 2014 and 2015.
Developing-country GDP is now projected to be around 5.1 per cent in 2013, strengthening to 5.6 per cent and 5.7 per cent in 2014 and 2015, respectively, with growth in Brazil, Russia, India and South Africa projected to remain weak. Looking at broader region-wide trends, the East Asia & Pacific region is expected to grow by 7.3 per cent this year; Europe & Central Asia by 2.8 per cent; Latin America & the Caribbean by 3.3 per cent; Middle East & North Africa by 2.5 per cent; South Asia by 5.2 per cent; and Sub-Saharan Africa by 4.9 per cent.