Emerging Nations Are Less Prepared for Global Slump, World Bank Warns
Emerging and developing economies are less prepared for a sharp global downturn now than they were before the financial crisis.
(Bloomberg) --
Emerging and developing economies are less prepared for a sharp global downturn now than they were before the financial crisis a decade ago, the World Bank warned, adding that there’s an urgent need to shore up defenses.
Those countries “generally are more vulnerable to external shocks, in part because of mounting debt, weakening demand for commodity exports, and slower underlying domestic growth,” according to the study released Wednesday. “The window of opportunity for rebuilding resilience before the next downturn materializes may be narrowing.”
Bank officials said trade disputes are chipping away at a key growth engine for emerging economies, with weaker finances making it harder to offer fiscal support if needed.
The report does provide an upbeat note: Since 1997, policy frameworks have become more resilient because more countries have inflation targets and better fiscal policies. Many emerging-market central banks also still have room to reduce borrowing costs further.
The deep dive into the crisis aftermath, titled “A Decade After the Global Recession,” comes as policy makers around the world confront the weakest growth outlook since that contraction. The International Monetary Fund last month cut its 2019 forecast to a decade-low 3%, while the World Bank in June lowered its global growth projection to 2.6%.
This year’s growth is poised to be weaker than previously estimated amid broad weakness in trade and industrial activity, according to the report. That echoed a recent warning by World Bank President David Malpass that the expansion would likely fall short of the June projections.
“Vulnerabilities to external shocks have grown, including through higher debt and weaker fiscal positions, accompanied by diminished long-term growth prospects, undermining the effectiveness of a possible response to the next downturn,” Ceyla Pazarbasioglu, vice president for equitable growth, finance and institutions, wrote in a foreword.
“Those that rely on commodity exports also face a world where demand growth for their commodities will likely be weaker than prior to the global recession,” she said.
Many emerging and developing economies need to rebuild their fiscal defenses, boost foreign reserves, and set financial-sector policies that better mitigate systemic risks, the Washington-based development lender said.
To contact the reporter on this story: Jeff Kearns in Washington at jkearns3@bloomberg.net
To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Nasreen Seria, Michael S. Arnold
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