WASHINGTON, April 6: Global economic growth is expected to cool slightly in 2005 after the strongest pace of expansion in last four years, the World Bank said on Wednesday, while the IMF warned high oil prices were braking growth.The World Bank’s annual Global Development Finance 2005 report showed overall economic growth of 3.8 per cent in 2004, while projecting a slowdown to 3.1 per cent in 2005.
Separately, the International Monetary Fund warned that high oil prices were increasingly a “downside risk” to the global economy, and forecast they would trim at least 0.25 to 0.50 percentage points off growth this year.
The signals by the two sister institutions came ahead of their joint annual meetings in Washington later this month, and a week before the IMF publishes its twice-yearly World Economic Outlook on the state of the global economy.
The World Bank noted that developing countries outgrew high-income countries in 2004, and gains were widespread.
“But global growth momentum has peaked, and developing country gains are vulnerable to risks associated with adjustments to ballooning global imbalances — especially the $666 billion US current account deficit,” the report said.
The strong global performance in 2004 was underpinned by solid US growth (4.4pc) and rapid expansion in China, India and Russia.
Developing nations grew at an average 6.6 per cent pace, supported by a surge in financial flows not seen since the financial crises of the late 1990s.
Net private capital flows, including debt and equity to developing countries, increased by $51 billion to $301.3 billion in 2004, the report said.
“This recovery of financial flows is a welcome sign of renewed market interest in developing countries and a tribute to the substantial strengthening in economic fundamentals achieved in many countries,” said Francois Bourguignon, the World Bank’s chief economist.
“But we should also keep in mind that current global financial imbalances pose risks — of disorderly exchange rate movements or of interest rate increases — that could threaten these gains. Developing countries need to prepare themselves for adjustments, some of which could be sudden.”
“History has shown, time and again, that financial crises often take markets and policymakers by surprise,” said Uri Dadush, director of the Bank’s Development Prospects Group.
“There is a tendency for financial markets and policymakers to miss the warning signs and overshoot, making the necessary adjustment larger when it does occur. For developing countries, the key question is whether the pickup in flows witnessed over the last two years can survive under less favourable and less stable global conditions.”
IMF managing director Rodrigo Rato, in a newspaper interview published on Wednesday, said that surging oil prices would shave between 0.25 and 0.5 percentage points off global economic growth this year.
“The high price of oil will cut growth of the global economy by at least 0.25-0.50 percentage points again this year,” Rato told the German business daily Handelsblatt.
In September the IMF had been pencilling in an average annual oil price of $37.30 per barrel this year, it raised that forecast to $46.50 in March. And now the price was expected to average around $51.90, Rato said.
“High oil prices are increasingly becoming a downside risk” to global growth, he warned.
“The same can be said of the widening global current account deficits, the difference between growth and savings rates,” the IMF chief continued.
“The economies of Asia, China and the United States are dynamic, while Europe and Japan are lagging behind.”
So far, the global economy had been able to absorb such imbalances “in an orderly fashion... But if oil prices, inflation and currency movements trigger abrupt changes, the situation could deteriorate dramatically,” Rato said.—AFP
