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E-mail: Natabaki@worldbank.org WASHINGTON, DC, December 13, 2006 - Globalization could spur faster growth in average incomes in the next 25 years than during 1980-2005, with developing countries playing a central role. However, unless managed carefully, it could be accompanied by growing income inequality and potentially severe environmental pressures, predicts the World Bank. According to Global Economic Prospects 2007: Managing the Next Wave of Globalization, growth in developing countries will reach a near record 7 percent this year. In 2007 and 2008, growth will probably slow, but still likely exceed 6 percent, more than twice the rate in high-income countries, which is expected to be 2.6 percent. GDP in South Asia is estimated to have expanded at a very rapid pace of 8.2 percent in 2006. India led the way with GDP growing by an estimated 8.7 percent, backed by nonagricultural growth in excess of 10 percent. Output in Pakistan is estimated to have slowed from 7.8 to 6.6 percent, following a return to more normal agricultural production in the wake of a bumper harvest in 2005. In Bangladesh, growth rebounded to 6.7 percent owing to stronger remittance inflows, vibrant services and manufacturing sector output and the waning impact on agricultural output of last year's floods. Economic activity in Nepal slowed to 1.9 percent because of the intensified conflict, a weather- related decline in agricultural production, and a decline in clothing exports. In Sri Lanka growth picked up to an estimated 7 percent, thanks to a good harvest, and post-tsunami recovery and reconstruction activity. "This strong growth in the region is fueled by economic reforms that have promoted private sector-led growth, sound macro management, and greater integration with the global economy," said Shantayanan Devarajan, World Bank Chief Economist for the South Asia region. "But the region faces several risks. Unless policymakers act early and decisively to control rising macroeconomic imbalances, inflation outturns will be higher, current account deficits larger, and the subsequent slowdown more pronounced". Devarajan also said that widening inequality in the region will not only make growth less potent at reducing poverty, but it may lead to new social conflict or exacerbate existing ones. GDP in South Asia is projected to slow gradually to a still robust 7.5 in 2007 and 7 percent in 2008. Weaker external demand, reflecting slower growth in the United States in 2007, tighter domestic monetary and fiscal policies, and tighter international monetary conditions are all factors contributing to the expected slowdown. The report predicts that globalization will expand the global economy from $35 trillion in 2005 to $72 trillion in 2030. "While this outcome represent only a slight acceleration of global growth compared to the past 25 years, it is driven more than ever before by strong performance in developing countries," said Richard Newfarmer, the report's lead author and Economic Advisor in the Trade Department. "And while exact numbers will undoubtedly turn out to be different, the underlying trends are relatively impervious to all but the most severe or disruptive shocks." Broad-based growth in developing countries sustained over the period would significantly affect global poverty. "The number of people living on less than $1 a day could be cut in half, from 1.1 billion now to 550 million in 2030. However, some regions, notably Africa, are at risk of being left behind. Moreover, income inequality could widen within many countries, compounding current concerns over inequality between countries," said Francois Bourguignon, World Bank Chief Economist and Senior Vice President, Development Economics. Global trade in goods and services could rise more than threefold to $27 trillion in 2030, and trade as a share of the global economy will rise from one-quarter today to more than one-third. Roughly half of the increase is likely to come from developing countries. Developing countries that only two decades ago provided 14 percent of manufactured imports of rich countries, today supply 40 percent, and by 2030 are likely to supply over 65 percent. At the same time, import demand from developing countries is emerging as a locomotive of the global economy. Continuing integration of markets will make jobs around the world more subject to competitive pressures. "As trade expands and technologies rapidly diffuse to developing countries, unskilled workers around the world - as well as some lower-skilled white collar workers - will face increasing competition across borders," explained Uri Dadush, Director of the World Bank's Prospects Group and International Trade Department. "Rather than trying to preserve existing jobs, governments need to support dislocated workers and provide them with new opportunities. Improving education and labor market flexibility is a key part of the long-run solution." Globalization is likely to bring benefits to many. By 2030, 1.2 billion people in developing countries-15 percent of the world population-will belong to the "global middle class," up from 400 million today. This group will have a purchasing power of between $4,000 and $17,000 per capita, and will enjoy access to international travel, purchase automobiles and other advanced consumer durables, attain international levels of education, and play a major role in shaping policies and institutions in their own countries and the world economy. The next wave of globalization will likely intensify stresses on the "global commons," which could jeopardize long-term progress, the report warns. Nations will have to work together to play a larger role in issues involving global public goods - from mitigating global warming, to containing infectious diseases like avian flu, to preventing the decimation of the world's fisheries. According to the report, global warming is a serious risk. Rising output means that annual emissions of greenhouse gases will increase roughly 50 percent by 2030 and probably double by 2050 in the absence of widespread policy changes. To avoid this, policies will have to promote "clean" growth so as to limit emissions to levels that will eventually stabilize atmospheric concentrations. Moreover, poor countries will need development assistance to adapt to coming environmental changes, including support for their participation in the carbon finance market. The authors conclude that the challenges of rapid globalization put new burdens on both national policymakers and international officials. Nationally, governments need to ensure that the poor are incorporated into the growth process through pro-poor investments in education, infrastructure, and support mechanisms for dislocated workers. They need to support and invest in workers-all the while promoting rather than resisting change. Internationally, the report calls for stronger institutions for tackling threats to the global commons. It also calls for more and better development assistance. Reducing barriers to trade is vital as well, since it can create new opportunities for poor countries and poor people. "Revitalizing the Doha round of world trade negotiations and concluding an agreement that benefits the poor is urgent," said Mr. Dadush. |
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