Emerging-market economies, growing almost three times faster than their developed counterparts, need to speed spending cuts and interest-rate increases as they fight inflation and overheating, the World Bank said.
The Washington-based institution lowered its growth forecast for the world economy this year to 3.2 percent from a January estimate of 3.3 percent, to reflect Japan’s earthquake and political unrest in the Middle East and North Africa. The World Bank left unchanged a prediction for a global rebound to 3.6 percent in 2012.
Developing countries “have put the crisis-fighting stage of the recovery behind them,” Andrew Burns, the World Bank’s manager of global macroeconomics, told reporters yesterday. “They now need to be reorienting themselves towards establishing the conditions that are going to allow them to have strong growth in years to come.”
While developed nations contend with high unemployment and Europe’s debt crisis, many emerging economies with strong expansions are yet to remove fiscal stimulus enacted to cushion the global recession, according to the World Bank. Real interest rates are low or negative in many countries even as policy makers from India to Peru raise borrowing costs, according to the bank.
Developing nations also need more flexible currencies, the World Bank’s Global Economic Prospects report said.
Policy makers “will need to make fuller use of all the tools at their disposal to keep inflation under control,” the World Bank said. “While the more unstable capital inflows that characterized the third quarter of 2010 have abated, many of the underlying conditions that attracted those flows remain in place.”
The World Bank also estimated that domestic food prices in developing countries may increase this year and next, even if international prices decline.
Risks to the global economy also include continued turmoil in Arab countries, where civil unrest has lifted oil prices. Higher energy costs could also boost food prices further, the bank said.
“Further financial stress may emerge, as monetary policy in high-income countries begins to tighten,” the bank said.
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