World Bank warns nations of slowdown

MANILA, Philippines - The World Bank has warned developing countries such as the Philippines to prepare for a global economic slowdown this year.

According to its Global Economic Prospects 2012 report released yesterday, developing countries are expected to grow by 5.4 percent, slightly lower from its 6.2 percent forecast in June.

“Even achieving these much weaker outturns is very uncertain. The downturn in Europe and weaker growth in developing countries raises the risk that the two developments reinforce one another, resulting in an even weaker outcome,” the report said.

Meanwhile, the World Bank also cut its global economic growth forecast from 3.6 percent to 2.5 percent in 2012 and 3.1 percent in 2013.

“Should more countries find themselves denied such financing, a much wider financial crisis that could engulf private banks and other financial institutions on both sides of the Atlantic could not be ruled out. The world could be thrown into a recession as large or even larger than that of 2008/09,” the report said.

The World Bank said the Philippines is likely to grow by 4.2 percent in 2012 and 5 percent in 2013.

The Philippines, which relies heavily on remittances, is in high risk to high-income countries that might experience economic crisis and political tensions.

“A severe crisis in high-income countries could put pressure on the balance of payments and incomes of countries heavily reliant on commodity exports and remittance inflows. A severe crisis could cause remittances to developing countries to decline by 6.3 percent – a particular burden for the 24 countries where remittances represent 10 or more percent of GDP,” it said.

For developing countries, the World Bank said it is important to put contingency measures and plan ahead to counter the adverse effects of an economic slowdown.

“An escalation of the crisis would spare no one. The importance of contingency planning cannot be stressed enough,” said Andrew Burns, manager of Global Macroeconomics and lead author of the report.

Since the developing countries’ ability to respond will be constrained, having less fiscal and monetary space for remedial measures, they “should pre-finance budget deficits, prioritize spending on social safety nets and infrastructure, and stress tests domestic banks,” said Hans Timmer, World Bank director for development prospects.

“Developing countries need to evaluate their vulnerabilities and prepare for further shocks, while there is still time,” Justin Yifu Lin, the World Bank’s chief economist and senior vice president for Development Economics, said in a statement.