Developing countries to grow more slowly, warns World Bank

Developing countries will grow more slowly in the first decade of the 21st century than they did in the early 1990s, and remain vulnerable to fresh financial crises, according to a new report published by the World Bank yesterday.

Developing countries will grow more slowly in the first decade of the 21st century than they did in the early 1990s, and remain vulnerable to fresh financial crises, according to a new report published by the World Bank yesterday.

The report also concludes that many areas of the world will miss the international target of halving the number of people, currently 1.2 billion, living on less than $1 a day by 2015. The Bank's first ever forecasts for poverty reduction predict that only Asia can be sure of meeting this goal and the scale of poverty will actually increase in sub-Saharan Africa.

The World Bank issued these warnings, in its annual Global Economic Prospects, despite revising up substantially its forecasts for average economic growth in the poor nations.

The Bank's economists predict developing economies will have grown by 2.6 per cent this year and will expand 4.2 per cent next year. These compare with forecasts of 1.5 per cent and 3.7 per cent published in April.

The report also foresees growth of 5 per cent a year on average from 2001-2008. But this compares badly with higher growth rates in the past, even though it remains higher than growth in the rich industrial countries. Joe Stiglitz, the World Bank's outgoing chief economist, said: "There is a growing consensus that in order to maximize the positive effects of growth that can come with openness, the international community must find ways to reduce the frequency and severity of economic crises."

According to the report, investment in emerging economies will take a long time to recover to pre-crisis levels, and will remain more volatile.

In addition, the crisis uncovered and even accentuated serious weaknesses in the structure of the economies affected. The biggest problem is the scale of the non-performing loans hanging over the banking sector and the high proportion of insolvent companies.

The crisis also demonstrated the need for better social safety nets. Although their flexible labour markets allowed lower wages and movement of people from towns to countryside to absorb some of the effects of the crisis, the penalty was a big increase in poverty and a sharp fall in middle class living standards.

The report is available at http://www.worldbank.org/prospects/