By the Blouin News Business staff

Developing countries get their biannual checkup

by in Global Economy.

Captura de pantalla 2014-06-11 a las 15.10.10

Global gross domestic product growth is projected to gradually rise to 2.8% in 2014, 3.4% in 2015 and 3.5% in 2016, compared to 2.4% in 2013, according to the World Bank in its biyearly Global Economic Prospects report. Developing countries are headed for a year of disappointing growth, as first quarter weakness in 2014 has delayed an expected pick-up in economic activity, reads the report. Some of the reasons the bank gives for such grim projections for low-income and middle-income countries as a whole  is that “bad weather in the United States, the crisis in Ukraine, rebalancing in China, political strife in several middle-income economies, slow progress on structural reform, and capacity constraints are all contributing to a third straight year of sub 5% growth for the developing countries.” Here we’re going to dig in to see what view the multilateral organization has on the so called developing countries.

  • The outlook for developing countries is for flat growth in 2014. This marks the third year in a row of sub-5% growth and reflects a more challenging post-crisis global economic environment. The flat yearly profile (partly due to headwinds emanating from the conflict in Ukraine, which are projected to dent output in Europe and Central Asia) masks an expected firming of activity during the course of 2014, with developing country growth reaching 5.4% and 5.5% in 2015 and 2016 — broadly in line with potential.
  • Developing country growth will not be more robust in part because most developing economies are already fully recovered from the crisis and growing at close to potential. Moreover, in the medium-term, global financial conditions will tighten.
  • Developing countries have shown their ability to prosper even as high-income country growth and imports weakened, but to continue to do so they will need to reinvigorate domestic reforms that have taken a backseat to fire-fighting and demand management in the post-crisis period.
  • Overall economic activity in developing countries slowed in early 2014. Developing country industrial production grew at a 3.7% annualized pace during the first quarter of 2014 well off the average of 7.6% between 2000 and 2013.
  • Fiscal conditions in developing countries considered as a group are not worrisome, although exceptions exist. While policy adjustment has started to reduce risks in some countries, fiscal balances have deteriorated substantially since 2007, and, despite solid growth, debt levels have increased by 10% or more of GDP in more than half of developing countries.
  • Developing countries need to gradually strengthen buffers to increase their resilience to external shocks, and need to more aggressively pursue structural reforms to ensure stronger growth in the medium term. Indeed in most developing countries, a further acceleration of growth (or even sustaining growth at current levels which are broadly in line with potential) cannot be assured without efforts to expand capacity. In most developing regions, demographic dividends from rising entrants into the labor force are fading as age dependency ratios increase, weighing on potential growth. For most of these countries, structural reforms are needed if they are to raise productivity and alleviate supply side bottlenecks.
  • The outlook reflects countervailing forces. On the one hand, the high-income acceleration will supply an important tailwind, with their contribution to global growth expected to rise from less than 40% in 2013 to nearly 50% in 2015. As a result, high-income import demand is projected to accelerate from 1.9% growth last year to 4.2% in 2014 and as much as 5.0% in 2016, and developing country exports from 3.7% last year to 6.6% by 2016.
  • Among developing countries, short-term risks have also become less pressing, partly because earlier downside risks have been realized over the past year without generating large upheavals, and because the economic adjustments over the past year have reduced vulnerabilities. For example, the depreciations endured and interest rate hikes and other policy measures imposed since the summer of 2013 narrowed current account deficits and slowed credit growth in subsequent months in several of the countries hardest hit in the summer (India, South Africa, and Thailand).