GDP growth in developing countries expected to reach 7.1 pct, Word Bank says

Resilience in developing economies is cushioning the current slowdown in the United States, with real GDP growth for developing countries expected to ease to 7.1 percent in 2008, while high-income countries are predicted to grow by a modest 2.2 percent, says the World Bank’s report titled Global Economic Prospects 2008 (GEP 2008). The report notes that world growth slowed modestly in 2007 to 3.6 percent compared with 3.9 percent in 2006, a downturn due largely to weaker growth in high-income countries. In 2008 global growth is expected to be 3.3 percent. A weaker US dollar, the specter of an American recession and rising financial-market volatility could cast a shadow over this soft landing scenario for the global economy. These risks would cut export revenues and capital inflows for developing countries, and reduce the value of their dollar-investments abroad. In this context, the reserves and other buffers that developing countries have built up in past years may be needed to absorb unexpected shocks. The report’s authors assume that credit turmoil in international markets will persist into late 2008, but that costs to large financial institutions will remain manageable. Moreover, they predict that spillover from problems in the US housing market on consumer demand will remain limited. Recent robust developing country growth has contributed to high commodity prices, notably for oil, metals and minerals. These have benefited many commodity exporters, thus explaining the strength of demand growth in some poorer countries. However, the recent increase in grain prices – partly due to increased grain production for biofuels – is hurting real incomes among the urban poor, the report reads. GEP 2008 also argues that more prudent macroeconomic management and technological progress have helped increase total factor productivity and real income growth in developing countries over the past 15 years, a trend expected to help reduce poverty in the next decade.