World Bank: Developing nations face weak growth

Investors looking at market board on Tokyo The crisis in eurozone has had a big impact on stock markets in emerging economies in Asia

Developing nations should brace themselves for weak growth and "tougher times", the World Bank has warned.

It said that there may be "a long period of volatility in the global economy" as the eurozone debt crisis escalates.

The bank forecast that developing economies will grow by 5.3% this year, down from 6.1% in 2011.

It urged policymakers to take adequate long-term measures to ensure that they can sustain growth.

"Developing countries should focus on productivity-enhancing reforms and infrastructure investment instead of reacting to day-to-day changes in the international environment," said Hans Timmer, director of development prospects at the World Bank.

Increased threat

The World Bank warning comes amid heightened fears about the eurozone debt crisis spreading to the region's bigger economies such as Spain and Italy.

Start Quote

The problems are serious and developing countries should reckon with a long period of low growth in Europe”

End Quote Hans Timmer World Bank

The borrowing costs for these nations have risen significantly, raising concerns about their ability to replay their debts.

On Tuesday, the benchmark 10-year bond yield for Spain hit 6.81%, the highest rate since the launch of the euro in 1999.

Meanwhile, Italy's 10-year bond yield rose to 6.28%, a rate not seen since January this year.

This followed a 100bn-euro ($125bn; £80bn) bailout of Spanish banks over the weekend.

There are fears that as the crisis escalates it will hurt investor sentiment in Europe and dent demand.

That does not bode well for developing economies, especially in Asia, which rely heavily on demand from the eurozone for their exports.

"The problems are serious and developing countries should reckon with a long period of low growth in Europe," said Mr Timmer.

Mr Timmer added that there was possibility of "a further crisis in Europe" and that developing nations should prepare themselves for any such scenario.

China factor

To make matters more complicated, growth in China, the world's second largest economy and one of the biggest consumers of commodities, has also slowed.

Its economy grew at an annual rate of 8.1% in the first quarter, the slowest pace in almost three years.

Hans Timmer of the World Bank says developing countries will be affected by the eurozone crisis

Exports, one of the biggest drivers of Chinese growth, have been slowing amid a falling demand from markets such as the US and Europe.

At the same time, domestic demand has not grown fast enough to offset a decline in foreign sales.

As a result, there are fears that growth in the Chinese economy may slow further in the near term.

The World Bank warned that a "more rapid than expected" slowdown in China was a threat to the other economies in the Asia-Pacific region.

"A slowdown in China would spill-over into the rest of the region in the form of reduced demand for exports, and commodity dependent countries would be especially at risk of a slowdown in China's investment," the bank added.

More on This Story

Global Economy

From other news sites

* May require registration or subscription

The BBC is not responsible for the content of external Internet sites

More Business stories

RSS

Features

  • Witley Court in Worcestershire Abandoned mansions

    What happened to England's lost stately homes?


  • Tray of beer being carried10 Things

    Beer is less likely to slosh than coffee, and other nuggets


  • Spoon and buckwheatSoul food

    The grain that tells you a lot about Russia's state of mind


  • Woman readingWeekendish

    The best reads you need to catch up on


  • Salim Rashid SuriThe Singing Sailor

    The young Omani who became a pre-war fusion music hit


BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.