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Emerging markets get stark warning from World Bank

The World Bank delivers a reminder to emerging nations that they are not immune to the knock-on effects of the sovereign debt crisis

Emerging and frontier markets have been warned by the World Bank to not be too complacent and take steps to steel themselves against an economic meltdown, should the sovereign debt crisis continue.

Notably, it points out that several "big emerging economies" – and we all know who they are talking about – should prepare themselves for weakening growth:

The Bank has lowered its growth forecast for 2012 to 5.4% for developing countries and 1.4% for high-income countries (-0.3% for the euro area), down from its June estimates of 6.2 and 2.7% (1.8% for the euro area), respectively. Global growth is now projected at 2.5 and 3.1[1]% for 2012 and 2013, respectively.

Slower growth is already visible in weakening global trade and commodity prices. Global exports of goods and services expanded an estimated 6.6% in 2011 (down from 12.4% in 2010), and are projected to rise by only 4.7% in 2012.

Meanwhile, global prices of energy, metals and minerals, and agricultural products are down 10, 25 and 19% respectively since peaks in early 2011. Declining commodity prices have contributed to an easing of headline inflation in most developing countries. Although international food prices eased in recent months, down 14% from their peak in February 2011, food security for the poorest, including in the Horn of Africa, remains a central concern.

Experts have told Euromoney for some time about the slowdown in economic growth for China, and other emerging markets should be aware that the sovereign debt crisis is not fenced in exclusively in the West.

India, another huge emerging market economy, has showed signs it isn't the goose with the golden egg and the slowdown in growth of GDP is a lot worse than economists and even its own government had forecasted.

The challenges many emerging markets face should be a warning to institutions that are moving, relocating and focusing attentions on Asia and the rest of the deck:

“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.

Developing countries have less fiscal and monetary space for remedial measures than they did in 2008/09. As a result, their ability to respond may be constrained if international finance dries up and global conditions deteriorate sharply.

While attention, no doubt, turns to and pinpoints China and India on Wednesday, there has also been some specific attention on Africa:

Dramatic political changes in the Middle East and North Africa have disrupted economic activity substantially, but selectively, across the region, while a deteriorating external environment is beginning to amplify adverse effects on trade, commodity prices, tourism and other revenues.
Developing oil exporters and the high-income GCC economies benefited substantially from the rise in oil prices but they remain vulnerable to a sudden fall in these prices. GDP for the developing countries of the region grew by an estimated 1.7% in 2011 and is expected to remain subdued in 2012 (2.3%), rising to an expected 3.2% gain by 2013.

Euromoney has said that the outlook for political risk in Africa this year remains elevated, despite the recent trend towards fair and free elections on the continent:

The increasing pace of political change in Africa is likely to have substantial effects in 2012, given the importance of government intervention to the region’s economies.

This year, the political agenda in Africa is likely to be dominated by the large number of scheduled presidential, parliamentary and local elections. The table below shows planned presidential elections in Africa this year. Other legislative elections will also take place in countries such as Algeria, Burkina Faso, Cameroon, the Democratic Republic of Congo, Morocco and the Republic of Congo.

For more of the latest in-depth coverage on emerging markets, don't forget to check out the January issue of Euromoney magazine for:


Africa's new frontiers

China plays catch-up with the developed world

- Euromoney Skew Blog

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