Developing countries to focus on raising economies growth potential

Developing countries should focus on raising the growth potential of their economies, while strengthening buffers to deal with risks from the eurozone and fiscal policy in the US, the World Bank warned in a report released on Wednesday.

It said that, to regain precrisis growth rates, developing countries must re-emphasise internal productivity through policy enhancement.

Developing countries recorded among their slowest economic growth rates of the past decade in the last year, partly owing to the heightened eurozone uncertainty of May and June.

World Bank Group president Jim Yong Kim said the world economy remained fragile, clouding the prospect for rapid improvement and a return to more robust economic growth.

He expected global growth to come in at a relatively weak 2.3% and 2.4% in 2012 and 2013 respectively and gradually strengthen to 3.1% and 3.3% in 2014 and 2015.

“Developing countries have remained remarkably resilient thus far. But we can’t wait for a return to growth in the high-income countries; so we have to continue to support developing countries in making investments in infrastructure, health and education,” he said.

The World Bank added that international capital flows to developing countries, which fell 30% in the second quarter of 2012, had recovered and bond spreads had declined to below their long-term average levels of around 282 basis points.

Developing-country stock markets were up by 12.6% since June, while equity markets in high-income countries were up by 10.7%.

However, the real economy had responded modestly, the report asserted.

Output in developing countries had accelerated, but was held back by weak investment and industrial activity in advanced economies.

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