The World Bank has urged Caribbean and other developing countries to safeguard their economic growth, warning that the “road ahead remains bumpy.”
In the Global Economic Prospects (GEP) report, released on Jan. 16, the Washington-based financial institution says four years after the onset of the global financial crisis, the world economy “remains fragile and growth in high-income countries is weak.”
“Developing countries need to focus on raising the growth potential of their economies, while strengthening buffers to deal with risks from the Euro Area and fiscal policy in the United States,” the report says.
World Bank Group President Jim Yong Kim confirmed that the economic recovery remains “fragile and uncertain, clouding the prospect for rapid improvement and a return to more robust economic growth.
“Developing countries have remained remarkably resilient thus far,” he added. “But we can’t wait for a return to growth in the high-income countries, so we have to continue to support developing countries in making investments in infrastructure, in health, in education.
“This will set the stage for the stronger growth that we know that they can achieve in the future,” Kim continued.
The World Bank said last year, developing countries recorded among their slowest economic growth rates of the past decade, partly because of the heightened Euro Area uncertainty in May and June of 2012.
Since then, it said financial market conditions have “improved dramatically,” stating that international capital flows to developing countries, which fell 30 percent in the second quarter of 2012, have recovered, and bond spreads have declined to below their long-term average levels of around 282 basis points.
The World Bank said developing-country stock markets are up 12.6 percent since June, while equity markets in high-income countries are up by 10.7 percent.
However, it said the real-side of the economy has responded modestly. It said while output in developing countries has accelerated, it is being held back by “weak investment and industrial activity in advanced economies.
“From hopes for a U-shaped recovery, through a W-shaped one, the prognosis for global growth is getting alphabetically challenged,” said Kaushik Basu, senior vice president and chief economist at The World Bank.
“With governments in high-income countries struggling to make fiscal policies more sustainable, developing countries should resist trying to anticipate every fluctuation in developed countries and, instead, ensure that their fiscal and monetary policies are robust and responsive to domestic conditions,” he added.
The World Bank said that in the Latin America and the Caribbean region, GDP declined to an estimated 3 percent in 2012 (from 4.3 percent in 2011) because of a “marked slowdown in domestic demand in some of the largest economies in the region and a weak external environment.”
It, however, said “a more accommodative policy environment, stronger capital flows – notably FDI (Foreign Direct Investment) – and more robust external demand are expected to lift regional growth over 2013-2015 to an average of 3.8 percent.”