Solid growth in developing world, inflation risk: WB

The World Bank on Tuesday revised up its growth forecast for the developing world and warned that higher food and fuel prices were causing inflationary pressures to build up.

In its updated Global Economic Prospects report, the World Bank said the pace of growth in the world's developing countries should average 6.3% over the next three years through to 2013, which is down from 7.3% in 2010.

It revised up its forecast for growth in developing countries to 6.3% in 2011 versus 6% in a January report, and to 6.2% from 6.1% for 2012.

The majority of developing economies have, or are close to, full capacity activity levels while advanced economies still struggle with the effects of the global financial crisis, the World Bank said.

Low and middle-income countries were responsible for 46% of global growth in 2010, the report noted.

"Developing countries are at a point where they have put the crisis-fighting stage behind them and they now need to be reorienting themselves towards establishing conditions that are going to allow them to have strong growth in the years to come," said World Bank economist Andrew Burns.

Developing countries need to hone in on difficult domestic policies that will ensure lasting, strong economic growth, he said. Countries may need to tighten both monetary and fiscal policy more quickly to curb inflationary pressures, Burns added.

Rising commodity prices have pushed headline Inflation rates higher, which are close to, or have breached the upper limits of central banks' targeted bands in many countries, the report said. Food inflation exceeded 9% by February 2011 in developing countries, it added.

"Headline (consumer price inflation) suggests that inflation will accelerate further in most developing regions," the World Bank said, noting that the biggest rise will be in South Asia, Africa and the Middle East.

Burns said the recent spate of weak economic data pointed to a pause or slowing of growth in the US economy. He dismissed the possibility of a double-dip recession.

Meanwhile, the recovery in Europe faced substantial headwinds from uncertainty over a debt crisis in Greece, Portugal and Ireland, the report said.

While the World Bank forecast is for solid growth in developing countries, the report highlighted risks from costlier food and fuel, possible further price spikes in oil and nagging post-crisis problems in advanced economies.

Pressures from a surge in private capital flows into emerging economies, which was a key concern for the World Bank in January, had now eased significantly, Burns said.

"Those strong, short-term capital inflows that dominated our concerns have eased substantially," Burns told a news conference.

He said countries had dealt with the effects of the "hot money" by tightening fiscal and monetary policy, which in the bank's opinion had eased some of the pressures.

"Our baseline forecast is one where there is a smooth landing, a smooth resolution of those pressures but they are still there," Burns added.

TEMPEST IN THE MIDDLE EAST

The World Bank report warned that political turmoil and unrest in the Middle East and North Africa could derail global growth if oil prices rose sharply, which would reduce economic output by around 0.5% points.

Turmoil has raged across the Middle East since January, starting in Tunisia and Egypt. Since then it has spread to Syria, Jordan, Morocco, Bahrain, Yemen, Saudi Arabia, while NATO kept up its bombing campaign in Libya.

The World Bank said a large and sustained drop in global oil supply due to the turmoil in the Middle East could push global oil prices as high as USD 200 a barrel.

The bank said higher global oil prices were a major factor behind the rise in world food prices, just three years after the last food price crisis in 2008.

More expensive oil feeds into food prices through the rise in fertilizer prices, transport costs to ferry food to markets, and through increased use of corn for biofuel production.

The Bank noted that the rise in global food prices has been mitigated by healthy local harvests in some regions of the developing world.

World Bank simulations suggest that if the June 2011/May2012 crop year is normal, then globally-traded grain prices should decline in 2012. However, if the crop is poor then wheat prices could rise by a further 3.5%.