EMERGING ECONOMIES TO OUTGROW DEVELOPED NATIONS BY 2015, WORLD BANK SAYS

Washington, September 28 -Emerging nations will account for a bigger portion of the global economy than developed countries by 2015, as middle-class populations from southeast Asia to Latin America expand while public and private investment grows, according to a World Bank report.

“Developing countries have come to the global economy’s rescue,” Otaviano Canuto, World Bank vice president for poverty reduction and economic management, said in an e-mailed statement. “They are the new locomotives of growth which will move global growth forward while high-income countries remain stagnant.”

Emerging markets have been leading the world out of the worst recession in six decades, with China surpassing Japan as the world’s second-largest economy last quarter. International Monetary Fund chief economist Olivier Blanchard last week predicted “positive but low growth in advanced countries” while developing nations expand at a “very high” rate.

Emerging economies are finding autonomous sources of growth as “they have room for more leverage in the balance sheets of their public and private sectors,” according to the report, which also identified high commodities prices and technological catch-up as a source of strength.

After trade shrank in the global recession, the World Bank economists are forecasting increased commerce between developing countries and a diversification of products in world trade.

Managing Exchange Rates

These changes in trade patterns mean managing exchange rates may not be an effective instrument for expanding markets, the economists said.

Artificially high exchange rates may interfere with the need to import goods that are turned into exported products, the report said. At the same time, the cost of maintaining an undervalued currency “in terms of reserve accumulation and inflationary pressures will prove unbearable,” they said.

The increase in sovereign wealth funds’ size and number will also translate into higher “south-south” investment, such as China’s purchases of African assets, the authors said.

Emerging economies’ situations differ, with Latin America “well positioned to enter a path of fast and sustained development” while Eastern Europe and Central Asia, the regions that were hardest hit by the financial crisis, need to improve competitiveness, according to the report.

The East Asia and Pacific region, which is leading the recovery, still needs to make progress on economic integration and climate change, with China having to expand domestic consumption and services, the report said.

South Asia’s priority is to reduce fiscal deficits and control debt accumulation, while sub-Saharan Africa has to focus on improving infrastructure and job creation, the report said. The Middle East and North Africa need to open the door to a new generation of private entrepreneurs and to let women fully join economic life, it said.

The report, called “The Day after Tomorrow: A handbook on the future of economic policy in the developing world,” used IMF forecasts for global gross domestic products, which are made using purchasing-power-parity-adjusted exchange rates, to predict emerging nations’ growth rates.

<