WASHINGTON, June 12, 2012 – Developing countries should prepare for a long
period of volatility in the global economy by re-emphasizing medium-term
development strategies, while preparing for tougher times, says the World
Bank in the newly-released Global Economic Prospects (GEP), June 2012.
A resurgence of tensions in high-income Europe has eroded the gains made
during the first four months of this year, which saw a rebound in economic
activity in both developing and advanced countries and an easing of risk
aversion among investors. Since May 1st, increased market jitters have
spread. Developing and high-income country stock markets have lost some 7
percent, giving up two-thirds of the gains generated over the preceding
four months. Most industrial commodity prices are down, with crude and
copper prices down by 19 and 14 percent, respectively, while developing
country currencies have lost value against the US dollar, as international
capital fled to safe-haven assets, such as German and U.S. government bonds.
So far, conditions in most developing countries have not deteriorated as
much as in the fourth quarter of 2011. Outside of Europe and Central Asia
and the Middle-East and North Africa, developing country credit default
swap (CDS) rates, a key indicator of market sentiment, remain well below
their maximums from the fall of 2011.
“Global capital market and investor sentiment are likely to remain volatile
over the medium term – making economic policy setting difficult. In this
environment, 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.