Wednesday

23rd Aug 2017

Interview

World Bank highlights growth outside the EU crisis

  • Congolese market: Africa is one of the fast growing regions in the world (Photo: Andrew Willis)

For those suffering from eurozone crisis syndrome, it is easy to forget that an economic world exists beyond the EU's borders.

For all the talk of recession and depression it would be a mistake to think that economies are in retreat the world over. In reality, most of the world is growing - and not just the usual suspects.

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While the US, the EU and Japan tread water, five years after the start of the financial crisis, the 150 or more countries of the developing world are growing at an average of 5.1 percent.

Indeed, the World Bank which, like an increasing number of economic authorities, believes that the worst of the crisis may be over, expects the growth rate to hit 5.5 percent in 2013 and 5.8 percent in 2014 - closer to the pre-crisis rates of between 7 and 8 percent.

In the words of the Bank's Andrew Burns, speaking with this website, the prognosis for the world economy in 2013 is "relatively sombre but has an upside to it."

A Canadian economist and senior advisor, Burns is the author of the Washington-based body's annual Global Economic Prospects report. One of the main findings of the 2013 study, published last week, is that while developing economies have been hit by the problems in the US and Europe, they are still "the main driver of global growth."

For European readers, the report is a deflating, but scarcely surprising, text.

The World Bank expects the eurozone to remain in recession for the first half of 2013, contracting by a further 0.1 percent over the course of the year. Meanwhile, Europe's economic rivals in the US and Japan will see meagre growth of 1.8 percent and 0.8 percent, respectively.

So is this further proof of the slow decline of the western economic superpowers?

There is no doubt that the world's richest societies are not getting much richer. With a rate well over 7 percent, China almost certainly achieved more growth in 2012 than the eurozone will see in the 2010-2019 decade.

Burns acknowledges that the global gap between rich and poor is slowly closing, but emphasises the magnitude of the economic chasm that still exists.

"The gap is closing but per capita incomes in developing countries are still less than 10 percent [of those in the industrialised world]. Even if you have the same growth rates as now, in 2050 developing countries are still going to be half of the GDP of high income countries in 2010," he said.

That said, we are still looking at a huge rebalancing of the world economy.

Even the near 10 percent figure in 2012 is a leap from the meagre 3 percent per capita income levels that existed in 1992.

As developing countries get stronger, the dynamic of world trade is also evolving, with countries more reliant on trade with each other than on access to the US, Japanese and European markets.

Says Burns: "This trend is marking the world going forward and it means that the relationship between developing countries and the rest of the world is changing. So in 2011, for the first time, more than 50 percent of developing countries trade was with other developing countries, not the high income countries. That was partly because of the weaknesses in the high income world but also a reflection that developing countries are growing."

Meanwhile, even if most economic pundits tend to focus on the so-called tiger economies in South and East Asia, Burns noted: "what is surprising is the fact that Africa is one of the fast growing regions in the world."

"If you take South Africa out of the aggregate, sub-Saharan Africa is growing at 5.8 percent, over a third of countries in the region are growing at over 6 percent, and it's the only area where foreign direct investment (FDI) actually went up last year. It's a place where things are happening," he added.

While resource-rich African countries have benefited from the recent spike in commodity prices, the changes go deeper, with increasing levels of investment in telecoms, e-commerce and consumer goods distribution and with a growing middle-class to support it.

The EU is anxious to get any economic advantage it can.

The European Commission has opened negotiations on free trade agreements with a string of countries ranging from Japan to India and to the seven countries in the south-east Asian Asean group.

But Burns says that developing countries are at the same time discovering the rewards not just of regional or bilateral trade deals, but also of voluntarily reducing their own tariff restrictions.

"Regional trade agreements have, on balance, been trade creating not diverting, but probably as important has been the unilateral recognition that trade is good ... As a result, we see that trade in Africa has exploded, and average tariffs in Africa have come down from 30 percent in the 1990s to around 10 percent now," he said.

The good news for the developing world comes with a warning, however.

The World Bank says the dilemma of how to cut budget deficits while simultaneously paying for infrastructure investment applies as much to the developing world as to Europe.

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