World Bank lowers economic growth prognosis of Romania

The World Bank has reduced Romania’s economic growth prognosis for 2012 from a level estimated at 1.5 per cent to 1.2 per cent and warned that developing countries must get ready for a long global period of harder times and economic volatility.

Analysts are hardly surprised.

The World Bank has warned developing countries to get ready for a long period of global economic volatility.

”The reignition of tensions in Europe’s developing countries has eroded the profits gained in the first four months of 2012, when the economic activity was believed to have gotten better and the risk aversions of investors appeared to have been reduced” the ”Global economic Prospects” report issued by the World Bank, says.

It is very likely that the World Capital Market and the investors’ instinct will remain volatile for a medium period of time, which seriously complicates the adjustment of economic policies, Hans Timmer, director of the World Bank, says.

He also believes that in this situation developing countries should focus on implementing reforms to increase their productivity and investing in their infrastructure instead of trying to react to the almost daily changes that occur abroad.

The World Bank has also reduced its economic growth increase for most countries over the course of 2012, estimating a general increase of 5.3 per cent in developing countries, 1.4 per cent in developed countries and a contraction of 0.3 per cent in the Euro zone.

The analyst Aurelian Dochia believes that the amending of these prognoses is normal given that the crisis in the Euro zone is far from solved and that the important countries in this region are tackling problems related to their financial ensurances.

”In retrospect, there is a succession of this kind of warnings from the majority of international institution—MF, World Bank, Bank of Europe for development and even the EU committee. All of these institutions are readjusting their initial estimations, which were slightly more optimistic, to the evolutions observed in the last five months, which are unfavorable for the most part. So for me, this report issued by the World Bank is a sort of update on the situation”, Aurelian Dochia says.

Unfortunately, in addition to the confirmed problems, the progress in the emergent countries has become worrying because initially they were expected to continue to experience a subtiantially big and constant economic growth in the global context, the analyst added.

It has also become evident that the growth rhythm in emergent countries has started to slow down and that, naturally, there is still a big concern about China that seems to have slowed down considerably, Aurelian Dochia says.

Under these circumstances, the already confirmed crises, especially the ones in Europe, are becoming more and more complicated because if the growth in countries such as China, India and other bigger emergent countries decreases, then neither can Europe’s economy hope to maintain the export fluxes to these countries, so the European growth prognoses continue to be rather weak ” the analyst says.

Aurelian Dochia believes that the World Bank’s estimated level of economic growth for Romania in 2012, namely 1.2 per cent raises questions about the means by which the costs for 2012 will be financed.

In the bank’s report, developing countries are advised to try as much as possible to reduce their vulnerabilities by lowering the level of short-term debt, by cutting buget deficits and by reimplementing more unbiased monetary policies.

This would offer them more possibilities in case the global conditions worsen.

The document mentions that, although the chances that the afferent risks should materialize in the worst case scenario are rather small, a quick deterioration of the situation in Europe won’t overlook any of the developing areas in the world.

Emergent Europe and Central Asia are particularly vulnerable due to their commercial and financial ties with Europe’s developed states, but the poorest countries in the world will also be affected by the shock, especially the ones dependent on the remittals of their citizens residing abroad, of tourism and exports with goods, or the countries with high levels of short-term debt.

Translated by Vlad Nichita
MTTLC, Bucharest University