Global Economic Turmoil Having Dramatic Effects on Capital Flows to Developing Countries
22 Jun 2009
SEOUL, Korea, June 22, 2009 – Amidst global economic recession and financial-market fragility, net private capital inflows to developing countries fell to $707 billion in 2008, a sharp drop from a peak of $1.2 trillion in 2007. International capital flows are projected to fall further in 2009, to $363 billion.
Global Development Finance 2009: Charting a Global Recovery, warns that the world is entering an era of slower growth that will require tighter and more effective oversight of the financial system. Developing countries are expected to grow by only 1.2% this year, after 8.1% growth in 2007 and 5.9% growth in 2008. When
Global GDP growth is expected to rebound to 2% in 2010 and 3.2% by 2011. In developing countries growth is expected to be higher, at 4.4 % in 2010 and 5.7 % in 2011, albeit subdued relative to the robust performance prior to the current crisis.
“The need to restructure the banking system, combined with emerging limits to expansionary policies in high-income countries, will prevent a global rebound from gaining traction,” said Justin Lin, World Bank Chief Economist and Senior Vice President, Development Economics, “Developing countries can become a key driving force in the recovery, assuming their domestic investments rebound with international support, including a resumption in the flow of international credit.”
While the authors note that extraordinary policy responses by a number of big economies have prevented systemic collapse, they stress the importance of concerted global action while the crisis is still underway.
“To prevent a second wave of instability, policies have to focus rapidly on financial sector reform and support for the poorest countries,” said Hans Timmer, Director of the Bank’s Prospects Group.
