Global economy reaches turning point

WASHINGTON – Global economic growth has reached a turning point with a slowdown now clearly under way, led by the United States, the World Bank said yesterday.

In its annual Global Economic Prospects report, the Washington-based development lender said global growth was expected to reach 5,1 per cent this year, slow to 4,5 per cent in 2007, then rise slightly to 4,6 per cent in 2008. It said developing countries were in the driving seat, with growth reaching seven per cent in 2006, twice as fast as developed countries, then falling to 6,4 per cent in 2007 and 6,1 per cent in 2008.In comparison, developed economies would expand by 3,1 per cent this year, slow to 2,4 per cent in 2007 and strengthen to 2,8 per cent in 2008.”The gap between developing countries and high income countries is widening,” World Bank economist Hans Timmer told reporters.”Developing countries are able to accelerate while high income countries are not doing that,” he added.He said growth in the world’s developing countries would remain strong, boosted by improved policies and favourable financial conditions.The report said a soft economic landing remains likely, but warned that a cooling US housing market could spark a sharper-than-expected downturn and even a recession, which could have a major impact on developing nations.It said much slower growth would cause commodity prices to weaken, potentially placing many developing countries that have so far avoided current account problems in difficulty.The World Bank said so far inflationary effects of strong world growth had been largely confined to markets for global goods, such as commodity sectors.The report forecast that high global oil prices were likely to ease to US$56 a barrel in 2007 and fall further to just below US$53 in 2008 as supplies rise and demand growth eases.But it warned that if measures to slow growth in key developing nations such as China, Argentina and India fail, inflation in those countries could pick up.On China, the report said the economic outlook for the world’s fastest-growing economy was “still favourable” and growth would likely slow under 10 per cent for the first time in several years to 9,6 per cent in 2007 and 8,7 per cent in 2008.”For the moment, signs of overheating are limited to specific sectors and regions,” the report said.”Production capacity continues to expand in line with demand, inflation remains low and the current account is in surplus – all of which augurs well for a soft landing,” it added.GLOBALISATION Further ahead, the World Bank said globalisation would spur faster growth in average incomes in the next 25 years.But unless managed carefully, that growth could spur growing inequality and potentially severe environmental pressures.It said gains from growth and globalisation could be undermined by environmental side effects and called on developing countries to participate in global solutions.”As developing countries enlarge their role on the global stage, their integration as full partners in multilateral solutions to global problems will be essential,” the bank said.Mitigating climate change, containing infectious diseases and preserving marine fisheries were three key areas where more global cooperation was needed on the environment, it said.It forecast that the global economy could expand to US$72 trillion by 2030 from US$35 trillion in 2005, driven more than ever by strong economies in the developing world.The World Bank said incomes of developing countries would probably still be less than one-quarter of those of rich countries by 2030 but will converge more with rich nations.This would imply that countries like China, Mexico and Turkey would have average living standards roughly comparable to Spain today, the report said.And the number of people living below the poverty line of US$1 a day would likely fall to 550 million by 2030 from 1,1 billion today, but Africa would still suffer the highest poverty levels.Nampa-ReutersIt said developing countries were in the driving seat, with growth reaching seven per cent in 2006, twice as fast as developed countries, then falling to 6,4 per cent in 2007 and 6,1 per cent in 2008.In comparison, developed economies would expand by 3,1 per cent this year, slow to 2,4 per cent in 2007 and strengthen to 2,8 per cent in 2008.”The gap between developing countries and high income countries is widening,” World Bank economist Hans Timmer told reporters.”Developing countries are able to accelerate while high income countries are not doing that,” he added.He said growth in the world’s developing countries would remain strong, boosted by improved policies and favourable financial conditions.The report said a soft economic landing remains likely, but warned that a cooling US housing market could spark a sharper-than-expected downturn and even a recession, which could have a major impact on developing nations.It said much slower growth would cause commodity prices to weaken, potentially placing many developing countries that have so far avoided current account problems in difficulty.The World Bank said so far inflationary effects of strong world growth had been largely confined to markets for global goods, such as commodity sectors.The report forecast that high global oil prices were likely to ease to US$56 a barrel in 2007 and fall further to just below US$53 in 2008 as supplies rise and demand growth eases.But it warned that if measures to slow growth in key developing nations such as China, Argentina and India fail, inflation in those countries could pick up.On China, the report said the economic outlook for the world’s fastest-growing economy was “still favourable” and growth would likely slow under 10 per cent for the first time in several years to 9,6 per cent in 2007 and 8,7 per cent in 2008.”For the moment, signs of overheating are limited to specific sectors and regions,” the report said.”Production capacity continues to expand in line with demand, inflation remains low and the current account is in surplus – all of which augurs well for a soft landing,” it added.GLOBALISATION Further ahead, the World Bank said globalisation would spur faster growth in average incomes in the next 25 years.But unless managed carefully, that growth could spur growing inequality and potentially severe environmental pressures.It said gains from growth and globalisation could be undermined by environmental side effects and called on developing countries to participate in global solutions.”As developing countries enlarge their role on the global stage, their integration as full partners in multilateral solutions to global problems will be essential,” the bank said.Mitigating climate change, containing infectious diseases and preserving marine fisheries were three key areas where more global cooperation was needed on the environment, it said.It forecast that the global economy could expand to US$72 trillion by 2030 from US$35 trillion in 2005, driven more than ever by strong economies in the developing world.The World Bank said incomes of developing countries would probably still be less than one-quarter of those of rich countries by 2030 but will converge more with rich nations.This would imply that countries like China, Mexico and Turkey would have average living standards roughly comparable to Spain today, the report said.And the number of people living below the poverty line of US$1 a day would likely fall to 550 million by 2030 from 1,1 billion today, but Africa would still suffer the highest poverty levels.Nampa-Reuters