Saturday, December 16, 2006

Growth Prospects are Strong, but Social, Environmental Pressures from Globalization Need More Attention

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.

In Sub-Saharan Africa, GDP is estimated to have increased an impressive 5.3 percent in 2006, down marginally from 5.5 percent in 2005 and marking the third year of more than 5 percent growth. The deceleration in growth is mainly explained by a moderate slowdown in South Africa, the region’s largest economy. Excluding South Africa, regional growth was steady at 5.8 percent, with oil exporters growing 6.9 percent and small oil importers 4.7 percent.

This robust growth in the region reflects favorable international conditions and a substantially improved domestic policy environment that has improved countries’ supply potential,” said John Page, World Bank Chief Economist for the Africa Region. “At the same time, debt relief combined with lower interest rates and risk premia have reduced debt-servicing costs, increasing public funds available for productive investment.”

Growth in Sub-Saharan Africa is projected to remain above 5 percent over the next two years, as small oil-importing economies continue to grow by about 4.8 percent and growth in oil exporters accelerates owing to increasing capacity in countries like Angola and Equatorial Guinea, as well as a normalization of production levels in Nigeria.

On globalization, the report predicts that the global economy will expand 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.

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 Development Economics Prospect Group. “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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