The World Bank’s annual Global Economic Prospects is now out. The prognosis for the developing world looks good: growth of 7% is forecast — only fractionally down from 2007 (global growth should be 3.3% overall — not so bad).
Emerging market economies are affected by the US slowdown (see our post earlier this week). But internal demand is an increasingly powerful growth engine according to the Bank. And so the emerging economies are increasingly less dependent on exports to the US. The big emerging markets (Brazil, Russia, India, and China = BRICs) are the leaders. Their need for primary commodities is benefiting Africa and Latin America especially. This is all for the good: when Uncle Sam caught a cold in the past everyone else went down with flu. Now global growth is much less unequal in its distribution across countries. This has to be good for the world’s poor.
Two risks remain, however. The US could fumble the policy response to the sub-prime mortgage crisis. The Bank is worried that the US monetary easing (to flush liquidity into the credit-market) could flow into more speculative bets on the BRICs — thereby generating financial bubbles there, which eventually go bang. And the dollar’s recent decline could become disorderly — generating a flight into hard assets such as gold (which is topping recent highs). This would create more investor uncertainty, and an eventual destabilizing rush out of emerging markets (both equity and debt).
Of course these aggregate numbers hide a wide dispersion: China’s locomotive is going at 10% or so (although the steadiness of that growth makes the number suspect). But Kenya will be lucky to see zero growth this year. And the crisis there, and the disruption to trade with landlocked Rwanda and Uganda, will reduce their growth as well. Its no good being able to sell your commodities to China if you can’t get them out of Mombasa.