Global growth to slow this year, says World Bank

The World Bank expects global economic growth to slow in 2011, according to its Global Economic Prospects report for the year.

The report argues growth should slow to 3.3% in 2011, although global GDP expanded 3.9% last year as the world economy recovered from the financial crisis.

Despite two years of aggressive fiscal and monetary policy stimulus, many high-income and developing European and central Asian economies still suffer high unemployment rates and modest growth.

Low income countries recorded a rise in GDP of 5.3% in 2010, largely owing to an increase in commodity prices, remittance and tourism.

Developing country growth is twice that projected for high-income countries in 2011 at 6%. Developing countries face the risk of being affected by tensions in European financial markets, volatile capital flow ands and food price increases. (article continues below)

The report recognises that capital flows to developing countries picked up in 2010 as investors from high-income countries sought higher yields. Net international equity and bond flows rose by 42% and 30% respectively in 2010.

However, the dangers associated with such capital flow trends include the potential destabilisation of exchange rates, commodity prices and asset prices.

Volatile food prices could constitute a real risk to developing country growth, particularly if they are accompanied by poor agricultural results, such as those encountered by India in 2010, or an escalation in energy prices.