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World Bank predicts moderate growth

Continued robust expansion in developing countries will help offset a slowdown in the US this year amid concerns of a possible recession in the world's largest economy, the World Bank said yesterday.

The Washington-based international bank forecast global growth to moderate to 3.3 percent this year from 3.6 percent last year.

"Strong import demand across the developing countries is helping to sustain global growth," said Hans Timmer, co-author of the bank's annual Global Economic Prospects report.

"As a result and given a cheaper US dollar, American exports are expanding rapidly. This is helping shrink the US current account deficit and is contributing to a decline in global imbalances," Timmer was quoted as saying in a news release.

Gross domestic product growth for developing countries is expected to ease to 7.1 percent this year, while high-income countries are predicted to grow by a modest 2.2 percent, the bank said.

"Overall, we expect developing-country growth to moderate only somewhat over the next two years. However, a much sharper United States slowdown is a real risk that could weaken medium-term prospects in developing countries," said Uri Dadush, director of development prospects and international trade.

The bank said there was a concern that a faltering US housing market or further financial turmoil could push the country into recession and weaken demand for the products of developing countries.

However, the bank believes the spillover from problems in the US housing market on consumer demand will be limited. It expects the US economy to regain momentum and lead to a pickup in world output, which it predicts will expand by 3.6 percent next year.

Further sharp declines in the US dollar were also a potential threat, despite the boost provided to US exports. A less robust greenback provokes increased uncertainty and volatility in financial markets and increased trading costs, resulting in weaker export and investment growth worldwide, the report said.

And while a weaker dollar would benefit developing countries with dollar debt, it would also impose losses on those that hold dollar-denominated assets, the bank said.

To alleviate poverty, the report urged developing countries to harness better technology, saying that rapid technological progress in developing nations has helped to reduce the proportion of people living in absolute poverty from 29 percent in 1990 to 18 percent in 2004.

"Technological progress increased 40 to 60 percent faster in developing countries than in rich countries between the early 1990s and early 2000s," said Andrew Burns, lead economist and main author of the report.

But relatively thin domestic technology sectors in many developing countries is leading to a loss of talent to high-income countries which offer better economic and scientific opportunities, the bank said.

Of the 21.6 million scientists and engineers working in the US -- many performing cutting-edge research -- 2.5 million were born in developing countries, it said.

"Developing countries have a long way to go, given that the level of technology that they use is only one quarter of that employed in high-income countries," Burns said.
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