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World Economy in 2014: Troubling Stagnant Growth

Jim Yong Kim's picture
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A major World Bank Group report this week found that growth is stagnating in developing countries. It’s projected to be below 5 percent for the third straight year. That’s too modest to create the kind of jobs we need to improve the lives of the poorest people around the world.

If this trend continues, it will have long-term negative implications on developing countries, including the loss of an historic opportunity to end extreme poverty in the next generation. Millions of people around the world have been able to escape poverty over the last few decades largely because of high economic growth in developing countries.

At the World Bank Group, we’ve calculated that growth rates will have to accelerate from what they were before the global financial crisis – especially in South Asia and Africa – in order to create a world free from the stain of extreme poverty.

That’s why I’m troubled about the projections of our Global Economic Prospects – a report we put out twice a year. In January, we expected developing countries to grow by 5.3 percent in 2014. Now, we’ve lowered our expectations to 4.8 percent.

Part of the reason for the lower global forecast was the severe winter in the United States and the ongoing crisis in Ukraine. But the budgets of many developing countries are also strained and deficits are large and growing. At the same time, prices of commodities—on which many countries depend for income—have fallen while investment and financing have been harder to come by.

This means many countries don’t have much wiggle room to deal with a crisis, let alone lift more people out of poverty. It also means they must do all they can to avert potential shocks like the food crisis in 2007 that forced many poor people in developing countries to go without meals or to sell their assets just to eat.

Governments in the developing world need to move faster and invest more in domestic structural reforms – which means fiscal prudence, creating a competitive business environment and, over the long term, investing in health, education and infrastructure -- to spur broad-based inclusive economic growth. These proactive policies will benefit all citizens, including those who are in poverty or are just a crisis away from falling back into destitution.

The revised growth projections in developing countries still are much higher than those in the developed world. The developing world has many thousands of opportunities for investors, including those whose funds are now earning very low rates of return.

The World Bank Group can help lead investors to promising opportunities in places where you’d least expect it. Our private sector arm, the IFC, has years of experience in building capital markets and providing access to finance throughout the developing world. And our political risk insurer, MIGA, helps corporations enter new markets by guaranteeing investments.

While our recent report downgraded the economic projections for the developing world in 2014, we expect it to grow by 5.4 percent in 2015, and 5.5 percent in 2016. If countries undertake necessary reforms, and if the private sector makes critical investments, we hope that those growth rates will improve. That could produce a double win: companies would be more profitable and millions more people would be lifted out of poverty.

This post first appeared in LinkedIn Influencers.

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