World Bank warns on growth

Slower growth will hit attempts to reduce poverty

The world economy will experience "sluggish" growth next year, hitting attempts to reduce poverty in developing countries, the World Bank has warned in its latest global economic outlook.

The recovery has been much more hesitant and uneven than we expected

Nicholas Stern, World Bank chief economist

The Bank said that the need to remove trade and investment barriers which disadvantage poorer countries was becoming increasingly urgent.

It noted that foreign direct investment flows had fallen at the sharpest rate since the global recession at the start of the 1980s.

The report also said that while privatisations often helped economic activity, they were "no panacea" unless effective competition was introduced.

Mixed picture

The World Bank expects the global economy to grow by 2.5% next year.

That is better than the "exceptionally slow" growth of 2001 and 2002, but is still significantly below long-term potential growth rates, the report said.

"The recovery has been much more hesitant and uneven than we expected," said World Bank chief economist Nicholas Stern.

High-income countries are expected to grow by 2.1% in 2003, while developing countries should expand by 3.9%.

But the overall figures hide some large regional differences. East Asia is expected to grow by 6.1%, but Latin America will see only 1.8% growth as debt problems in the region persist.

Other brakes on global growth cited by the Bank include weak consumer confidence, higher debt following stock market falls and the fallout from corporate scandals in the US.

Trade action needed

The weakness of the global economy has hit investment flows into developing countries, the Bank said.

Simply transforming a state monopoly into a private monopoly squanders the potential of privatisation

Richard Newfarmer, author of World Bank report

"We're looking at the most sustained fall in foreign direct investment in developing countries since the global recession of 1981-83," said the report's lead author Richard Newfarmer.

The Bank also warned that the slow progress being made on the global trade talks launched at Doha in November last year was a worrying sign.

The director of the Bank's international trade department Uri Dadush said the need for speedy progress on trade talks risked being overlooked, given the slowing global economy.

"It would be unfortunate indeed if a myopic focus on short-term issues permitted protectionist forces to stifle progress in removing trade barriers and other impediments to investment and poverty reduction in developing countries," he said.

Competition the key

The Bank said that countries aiming to improve competition needed to be careful when selling state firms.

It noted that while privatisations had often contributed to growth and poverty reduction, it was not "a panacea" and would not improve matters if competition was lacking.

"Simply transforming a state monopoly into a private monopoly squanders the potential of privatisation," said Mr Newfarmer.

"The real benefits from privatisation come from introducing competition to drive productivity improvements and regulations that provide poor people with access to services."

The Bank said that in Africa, telephone services in countries with competitive networks had expanded three times faster than in countries with private telephone monopolies.