World Bank: Developing nations face weak growth

Developing nations should brace themselves for weak growth and "tougher times", the World Bank has warned. It said that there may be "a long period of volatility in the global economy" as the eurozone debt crisis escalates. The bank forecast that developing economies will grow by 5.3% this year, down from 6.1% in 2011. It urged policymakers to take adequate long-term measures to ensure that they can sustain growth. "Developing countries should focus on productivity-enhancing reforms and infrastructure investment instead of reacting to day-to-day changes in the international environment," said Hans Timmer, director of development prospects at the World Bank.

Increased threat

The World Bank warning comes amid heightened fears about the eurozone debt crisis spreading to the region's bigger economies such as Spain and Italy. The borrowing costs for these nations have risen significantly, raising concerns about their ability to replay their debts. On Tuesday, the benchmark 10-year bond yield for Spain hit 6.81%, the highest rate since the launch of the euro in 1999. Meanwhile, Italy's 10-year bond yield rose to 6.28%, a rate not seen since January this year. This followed a 100bn-euro ($125bn; £80bn) bailout of Spanish banks over the weekend. There are fears that as the crisis escalates it will hurt investor sentiment in Europe and dent demand. That does not bode well for developing economies, especially in Asia, which rely heavily on demand from the eurozone for their exports. "The problems are serious and developing countries should reckon with a long period of low growth in Europe," said Mr Timmer. Mr Timmer added that there was possibility of "a further crisis in Europe" and that developing nations should prepare themselves for any such scenario.

China factor

To make matters more complicated, growth in China, the world's second largest economy and one of the biggest consumers of commodities, has also slowed. Its economy grew at an annual rate of 8.1% in the first quarter, the slowest pace in almost three years. Exports, one of the biggest drivers of Chinese growth, have been slowing amid a falling demand from markets such as the US and Europe. At the same time, domestic demand has not grown fast enough to offset a decline in foreign sales. As a result, there are fears that growth in the Chinese economy may slow further in the near term. The World Bank warned that a "more rapid than expected" slowdown in China was a threat to the other economies in the Asia-Pacific region. "A slowdown in China would spill-over into the rest of the region in the form of reduced demand for exports, and commodity dependent countries would be especially at risk of a slowdown in China's investment," the bank added.