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Developing Countries Leading Economic Rebound

Jim Lobe

WASHINGTON, Apr 21 2010 (IPS) - Led by growth in developing countries, the global economy is rebounding more quickly than expected, according to the latest ‘World Economic Outlook’ (WEO) released by the International Monetary Fund (IMF) here Wednesday.

Emerging and developing economies are expected to grow at an average rate of 6.3 percent and 6.5 percent in 2010 and 2011, respectively – a sharp increase from the 2.4 percent growth in 2009 when the global economy was still reeling from the financial crisis, the worst since the Great Depression, that broke out in mid- September 2008.

By contrast, the world’s advanced western economies, which shrank by an average of 3.2 percent in 2009, are likely to grow at only about one-third the rate of the developing world – by 2.3 percent this year and 2.4 percent in 2011, according to the WEO.

Pick-up in the economies of the European Union (EU), confidence in which has been badly shaken by serious debt problems in Greece and other southern-tier countries, will be especially sluggish, according to the report. They are expected to grow by an average of only one percent this year and 1.5 percent in 2011.

Nonetheless, the overall picture painted by the latest WEO is somewhat brighter than it was just three months ago, when it predicted that global economic growth this year would rise by 3.9 percent. It now estimates growth for 2010 at 4.25 percent, following a contraction last year of 0.5 percent.

“A global depression has been averted,” the director of the IMF’s research department, Olivier Blanchard, told reporters here. “The world economy is recovering and recovering better than we thought likely,” although he also stressed that the long-term outlook remained “unusually uncertain”.

Of particular concern to the Fund is the build-up of public debt, particularly in wealthy countries, resulting from government efforts to stimulate their economies at a time when, in light of the financial crisis, private credit dried up.

While most advanced countries should carry through with their stimulus programmes this year, according to the WEO, they will face increasing pressure to cut their budgets and take other steps to reduce their mounting debt. For those countries, such as Greece, where debt has already climbed to crisis levels, measures to reduce it are far more urgent.

“In the near term, a risk is that, if unchecked, market concerns about sovereign liquidity and solvency in Greece could turn into a full-blown and contagious sovereign debt crisis,” the report warned.

At the same time, it noted that governments should pay special attention to combating unemployment, which is expected to average 10.5 percent both this year and next in Europe. In the U.S. unemployment is expected to average 9.4 percent this year and drop to 8.3 percent in 2011.

While prospects for advanced countries in Europe are particularly uncertain, the WEO, which was released on the eve of the annual spring meetings here of the IMF and the World Bank, stressed that developing countries in Asia, notably China and India, are leading the global rebound.

For both 2010 and 2011, China’s economy will grow about 10 percent, with India close behind at 8.8 percent this year and 8.4 percent in 2011, according to the report.

The average growth rate for all developing countries in the Asia region is projected at 8.7 percent for both years, up from 6.6 percent in 2009. In Southeast Asia, Indonesia and Vietnam are expected to lead the pack at six percent this year and a slightly higher rate in 2011.

Sub-Saharan Africa is also rebounding from the financial crisis relatively well, according to the report which predicted average growth in the region at 4.7 percent this year and nearly six percent in 2011 – up from 2.1 percent in 2009.

Expectations of increased global demand for energy will give African oil producers, especially Angola and Nigeria, a major boost to greater than seven percent growth over the next two years, but other low-income countries should also do well. Uganda, Tanzania, and Ethiopia, for example, are expected to maintain annual growth rates in excess of six percent.

South Africa, whose economy shrunk by nearly two percent in 2009, is expected achieve 2.6 percent growth this year and 3.7 percent in 2011.

The rate of economic growth is expected to double in the Middle East and North Africa – from 2.4 percent last year to 4.8 percent in 2011, although there will be wide variations between individual countries, according to the report. Among energy exporters, Qatar is expected to grow up 18.5 percent this year, while growth in the United Arab Emirates (UAE) will be far more subdued, at only 1.25 percent as a result of the crash in property prices.

Among the larger countries in the region, Iran’s economy, which could come under substantial pressure due to the U.S.-led sanctions campaign over its nuclear programme, is projected to grow three percent this year and 3.2 percent in 2011. Growth in Iraq both years should exceed seven percent, while the Egyptian and Syrian economies should grow five percent this year and 5.5 percent in 2011, according to the report.

The countries of the former Soviet Union, which shrunk an average of 6.6 percent in 2009, are recovering at a moderate pace, with four percent growth for the region expected this year, falling back to 3.6 percent in 2011. Gas-rich Turkmenistan will be the region’s leader with growth rates around 12 percent. Russia, whose economy contracted by nearly eight percent last year, will recover almost all of that ground by 2011, according to the report.

The WEO said Latin America and the Caribbean region, whose aggregate economy fell nearly two percent in 2009, is expected to achieve four percent growth both this year and next.

Peru is expected to lead the pack at a 6.3 percent growth rate this year, followed by Uruguay at 5.7 percent and regional powerhouse Brazil at 5.5 percent. Venezuela’s economy, which fell 3.3 percent last year, will shrink further – by 2.6 percent – this year before edging into positive territory at 0.4 percent in 2011, the report predicted.

After declining 6.5 percent in 2009, the Mexican economy, which is closely tied to the U.S., is expected to grow by 4.2 percent this year and 4.5 percent in 2011.