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The sustainable global growth that was predicted to occur as a result of renewed investment spending in high-income countries has not materialized. The threat of war in Iraq was one factor that had a negative impact on worldwide growth in the first half of 2003 as oil prices rose and investor confidence fell. The growth in output for low- and middle-income countries was 3.3 percent in calendar 2002, up from 2.8 percent in 2001. Growth in developing countries was affected by the lack of a strong recovery in the industrial countries and by financial and political uncertainties in several large emerging markets. The demand for developing-country exports grew by only 2.5 percent, whereas prices for non-oil commodities rose by 5.1 percent. Net debt flows were weak, especially to Latin America, and foreign direct investment declined by $16 billion.
During 2002 growth differed considerably across the major regions of the developing world, largely as a result of domestic conditions.
East Asia’s growth was 6.7 percent, fueled by China’s growth of 8 percent and conducive policies in other countries. At the other end of the spectrum, gross domestic product (GDP) growth in Latin America and the Caribbean dropped by 0.8 percent because of the banking collapse and government debt default in Argentina, uncertainty regarding Brazilian elections, a worsening of conditions in the República Bolivariana de Venezuela, and a decrease of over $30 billion in financial market flows. In Europe and Central Asia, growth was 4.6 percent, resulting from a sharp recovery of activity in Turkey following its 2001 crisis, as well as continued gains linked to higher oil prices in Russia and the Commonwealth of Independent States countries. The continued strength of domestic demand in India led to gains of 4.2 percent in South Asia, despite the disruptions in regional conditions associated with the war on terrorism. Growth in Africa and in the Middle East and North Africa was sluggish, with the regions both registering growth rates of 2.8 percent and 3.1 percent respectively.
Growth in developing countries overall is projected to accelerate to 4 percent in 2003 and to 4.9 percent in 2004. This forecast partly reflects the end of crisis conditions in several countries where output was severely compressed in 2002. But it is also founded on a number of crucial assumptions about the conditions facing developing countries, including some disruptions from military action in Iraq but no severe, lasting effects; the expansion of world trade by 4.6 percent in 2003 (double the 2.3 percent growth in global GDP); and a slight rebound in the flows of foreign direct investment as well as in modestly positive net debt flows from private sources.
In this context the World Bank continued to adapt its activities in responding to country needs for knowledge and advisory services, and for lending.
Also available:
Operational Summary, Fiscal 2003
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