World Bank warns of more severe economic shocks in 2012

A major obstacle. Developing countries, like Uganda have for the better part of 2011 suffered with slowed growth exacerbated by the volatilities in the Eurozone and the Americas.

Kampala

The World Bank has told developing countries to prepare for shocks that could be more severe than the 2008 crisis, warning of a possible slump in global economic growth.

World Bank said in its 2012 Global Economic Prospects report yesterday that the ripple effects of the financial turmoil in the Eurozone and weakening growth in emerging markets were lowering global growth prospects.

“The global economy is entering into a new phase of uncertainty and danger. Developing countries need to evaluate their vulnerabilities and prepare for further shocks, ” Mr Justin Yifu Lin, the bank’s chief economist said.

He said developing countries have less fiscal and monetary space for remedial measures than they did in 2008/09, which may constrain their ability to respond if international finance dries up and global conditions deteriorate.

Mr Hans Timmer, the director of development prospects at the World Bank, however, advised that countries should line up financing in advance to cover up budget deficits, review the health of their banking sector, and prioritise spending on social safety nets and infrastructure to prepare for the possibility of shocks.

The bank also cut its global growth forecast for 2012 to 5.4 per cent from 6.2 per cent for developing countries and 1.4 per cent from 2.7 per cent developed countries. The global growth is projected at 2.5 and 3.11 per cent for 2012 and 2013, respectively.

The report states that slower growth of the global economy is already seen in weakening global trade and commodity prices. Global exports of goods and services is said to have expanded by an estimated 6.6 per cent in 2011, down from 12.4 per cent in 2010 and is projected to rise by only 4.7 per cent in 2012.

Declining commodity prices are said to have contributed to easing of headline inflation in most developing countries. Uganda’s inflation for instance slowed from 30.4 per cent in October to 27 per cent in December 2011 due to increased food supply to markets, resulting into a marginal fall in commodity price.

Despite the volatilities in the global economy, growth in Africa remained robust, edging up from 4.8 per cent in 2010 to 4.9 per cent in 2011. just below the 5 per cent pre-crisis average.

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