Developing countries will enjoy their best year of economic growth in 2004, producing a ”spectacular” drop in poverty around the world, the World Bank said on Tuesday.
Releasing its annual report on global economic prospects, the World Bank said developing countries will register growth of 6,1% this year and just above 5% in 2005 and 2006. This compares with overall global growth of about 4% for this year.
Nor were these increases confined to the fast-growing economies of China and India but were widespread around the developing world with the notable exception of Africa, said Ari Dadush, director of development prospects at the Washington-based organisation.
”A lot of countries have grown a lot faster in the past couple of years than they did in the 90s. And growth is the single most important driver of poverty reduction. It is absolutely fundamental,” he said.
The East Asia Pacific region’s growth was the strongest, driven by China, at 7,8% this year and is expected to slow to 7% next year and 6,6% in 2006.
Dadush said there were risks to the generally rosy short-term outlook from oil prices, the US current account and budget deficits and the possibility of an abrupt slowdown in the Chinese economy.
He said oil prices, which are in sharp retreat from record highs above $55 a barrel set last month, should not derail the world economy but could have a disproportionately large effect on developing nations which depend on oil imports to meet energy needs.
”The biggest hit is taken on domestic demand and therefore could lead to cuts in investment,” Dadush warned, adding that the unwinding of the US deficits, if it caused the dollar to fall further and forced up global long-term interest rates, risked damaging developing countries’ economies.
But overall the report was positive about the outlook for developing countries, saying that in the medium and longer term they could double their growth rates to an average of 3,4%, up from less than 2% during the 90s.
Such a growth rate would enable all regions except sub-Saharan Africa to halve poverty by 2015, the first of eight millennium development goals countries signed up to four years ago.
The faster growth was possible because of a sustained improvement in their macro economic stability, greater flexibility in moving resources to competitive opportunities, a better investment climate and continued progress in reducing trade barriers.
Sub-Saharan Africa remained the global laggard because of its vulnerability to oil prices and more fundamental issues of ineffective economic structures and inefficient government spending, it said, which would only partly be offset by further aid flows and debt forgiveness.
The report also warned that the growing trend towards regional trade agreements between countries, rather than multilateral trade deals, were not necessarily a panacea for developing countries’ problems. ”Regional trade agreements offer some benefits to some developing countries provided they do not occur behind a wall of protection,” said World Bank chief economist François Bourguignon.
”However, preferences favouring some countries discriminate against others. Nearly all agreements have adverse consequences on excluded countries. The most effective way to curb these negative effects is to open markets more broadly.”
Dadush said regional agreements were proliferating and now covered a third of world trade. ”But their liberalising effect has been moderate.”
Of more fundamental importance to world trade was the success of the so-called Doha round of international trade liberalisation talks. He urged the main trading nations to find the political will to bring the round to a successful conclusion next year. – Guardian Unlimited Â