Synthesis: Growth after the Global Recession in Developing Countries
growth. Poland will continue to be an attractive destination for FDI and other capital flows. Ethiopia’s medium-term potential growth rate is likely to be 7.8 percent, 0.55 percentage point lower than the precrisis estimate. Given that Ethiopia continued to grow in the aftermath of the crisis at higher than potential GDP growth, the output gap would practically disappear by 2015. This is mainly the result of domestic economic factors, but it also reflects expected changes in global economic conditions. Ethiopia was experiencing a surge in economic growth from 2004, led largely by peace, political stability, and policy initiatives to invest in infrastructure and diversify exports. Its potential GDP growth rate, during the precrisis boom, is estimated to have reached 8.35 percent per year as it became an attractive destination for FDI and workers’ remittances, and as exports surged. But the economy was overheating prior to the recent global crisis, with domestic absorption increasing by 15 percent or more and actual GDP growing by 11–12 percent. This situation was not sustainable, and growth was expected to slow as macroeconomic policy was adjusted. As it turns out, the crisis hit Ethiopia much harder than expected. Export growth collapsed, remittance flows and FDI slowed, and aggregate demand growth declined substantially. But thanks to Ethiopia’s relatively limited integration into the world economy, sustained aid flows, and active policies—including a large currency depreciation—GDP growth declined somewhat but remained strong. The slower rates of growth of remittances and of FDI are likely to affect private consumption and investment growth and to contribute to a slowdown in potential growth. The Philippines is expected to see GDP growth of 4.2 percent postcrisis, versus precrisis potential growth of 4.6 percent. The output gap would be – 6.2 percent by 2015. On the supply side, the decline in potential growth reflects both slower capital accumulation and productivity growth. Investment demand is likely to be weaker because of the higher cost of capital and continued weak investment climate. The manufacturing export sector is expected to face weaker global demand for electronics and semiconductors, while business process outsourcing should stay strong. Overall, the contribution of net exports to growth will be near zero. In addition, fiscal space constraints imply lower public consumption growth. All of these factors are likely to translate into a weaker labor market and lower private consumption growth.
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