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Global recession hits Asia's poor

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25 June 2009 15:52

Peter McCawley is a Visiting Fellow at the Indonesia Project, ANU, and former Dean of the ADB Institute, Tokyo.

Two major reports on the international economy have been released in the last few days — one from the World Bank, and one by the OECD. Forecasters in these and similar organisations watch each other's forecasts closely so it isn't surprising that on key points, the two reports tell similar stories.

One of the headline figures from both reports is that overall growth in the main rich countries is likely to decline by around 4% during 2009. This is a fairly stunning figure which underlines the huge cost of the policy blunders, especially in the US, which led to the near-collapse of global financial sectors in 2008.

The news is even grimmer for poor countries. Overall, growth in poor countries is likely to remain marginally positive at 1.2% in 2009. This might sound respectable compared to the actual decline of 4% in rich countries. But as I explain in a Policy Brief prepared for the Lowy Institute, mass poverty is a major problem in poor countries in Asia and high rates of sustained economic growth are needed to make any significant dent in the poverty problem. 

What is particularly worrying is the sharp drop in capital flows to poor countries which is now underway. The World Bank notes that 'Developing countries are likely to face a dismal external financing climate in 2009' and 'Private debt and equity flows will likely fall short of meeting the external financing needs…by a wide margin, amounting to a gap estimated to range between $US350 billion and $US 632 billion.'

Poor countries need investment to grow. If capital flows drop away sharply, they will be starved of capital and poverty will increase markedly.

Photo by Flickr user Cak-cak, used under a Creative Commons license.

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