Author : Editor
Developing countries, including the Philippines, should start preparing for a global economic slowdown this year, according to the World Bank.
In its Global Economic Prospects 2012 report released on Wednesday, the World Bank said "the risk of a much broader freezing up of capital markets and a global crisis similar in magnitude to the Lehman crisis remains."
"Should more countries find themselves denied such financing, a much wider financial crisis that could engulf private banks and other financial institutions on both sides of the Atlantic could not be ruled out. The world could be thrown into a recession as large or even larger than that of 2008/09," the report said.
"Although such a crisis, should it occur, would be centered in high-income countries, developing countries would feel its effects deeply," it said.
Amid the continuing European fiscal crisis and weakening growth in several big emerging economies, the World Bank significantly lowered its economic forecasts. It noted the global economy has "entered a very difficult phase characterized by significant downside risks and fragility."
It lowered its forecasts, saying it now expects the global economy to expand 2.5% and 3.1% in 2012 and 2013, respectively, versus the 3.6% it had projected for both years, in June 2011.
For developing countries, the World Bank cut its 2012 growth forecast to 5.4%, from its June forecast of 6.2%. For high-income countries, 2012 growth is now seen at 1.4%, compared to 2.7% forecast in June.
"Even achieving these much weaker outturns is very uncertain. The downturn in Europe and weaker growth in developing countries raises the risk that the two developments reinforce one another, resulting in an even weaker outcome," it said.
The possibility that political tensions in the Middle East and North Africa could disrupt oil supply may also affect economic outlook. It also noted that unresolved high deficits and debts in Japan and the U.S., and the slow trend growth in other high-income countries, may trigger sudden adverse shocks.
The World Bank forecasts the Philippines to grow by 4.2% in 2012 and by 5% in 2013.
It also warned that a crisis in high-income countries can have an adverse effect on countries, such as the Philippines, which are heavily reliant on remittance inflows.
"A severe crisis in high-income countries, could put pressure on the balance of payments and incomes of countries heavily reliant on commodity exports and remittance inflows. A severe crisis could cause remittances to developing countries to decline by 6.3%— a particular burden for the 24 countries where remittances represent 10 or more percent of GDP," it said.
Contingency planning
In the face of a highly uncertain environment, the World Bank stressed the importance of contingency planning for developing countries.
"Developing countries need to evaluate their vulnerabilities and prepare for further shocks, while there is still time,” said Justin Yifu Lin, the World Bank’s Chief Economist and Senior Vice President for Development Economics, in a statement.
The World Bank noted developing countries now have less fiscal and monetary space for remedial measures than during the 2008-2009 financial crisis. This means the developing countries' ability to respond may be constrained, when global conditions deteriorate.
Hans Timmer, director of development prospects at the World Bank, said developing countries "should pre-finance budget deficits, prioritize spending on social safety nets and infrastructure, and stress-test domestic banks."
"An escalation of the crisis would spare no-one. Developed- and developing-country growth rates could fall by as much or more than in 2008/09... The importance of contingency planning cannot be stressed enough," said Andrew Burns, Manager of Global Macroeconomics and lead author of the report.
Source : abs-cbnnews.com
