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Figure 1.10 Output growth in Latin America, South Asia, and Europe and Central Asia is fading Industrial production (percentage change, saar) 20 South Asia
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10
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0 25 210 Jan. 2006
Latin America & Caribbean
Jun. 2006
Nov. 2006
Europe & Central Asia
Apr. 2007
Sep. 2007
Feb. 2008
Jul. 2008
Source: World Bank data.
sharply (figure 1.10 and table 1.3, second panel). Imports across developing regions are also showing signs of easing, reflecting a softening of domestic demand. And export volumes from emerging markets displayed fading momentum over the first three quarters of 2008, notably in Latin America, as import demand in the OECD countries declined sharply. Overall GDP growth for the developing countries slowed from the 7.9 percent advance recorded in 2007 to 5.3 percent (annualized) during the second quarter of 2008 (see table 1.3 and associated notes).
prospects. The effects of the global financial crisis on developing countries will differ by region and by the ability of individual countries to offset adverse effects on domestic banking sectors and the broader financial market. Emerging-market corporate borrowers already are seeing a sizable widening of spreads and are increasingly being shut out of international bond markets (see discussion above). A pullback in syndicated bank lending is emerging (as commercial banks and other financial institutions in the high-income countries shore up balance sheets by limiting new lending or by calling in existing lines of credit), and initial public equity offerings from key emerging markets have dried up. Even before the freezing of credit flows that has accompanied the banking crisis, overall capital inflows to developing economies were down 35 percent over the first nine months of 2008 from the same period a year earlier.
The slowdown is likely to be more pronounced in 2009 Looking forward, recent adverse trends are anticipated to intensify, driven by an especially sharp decline in investment growth in developing countries, weaker exports as import demand from high-income economies declines, and lingering and in some cases still-escalating
Figure 1.11 Investment was the driving force for growth in developing countries Contribution to real GDP growth (percentage points)
Financial turmoil likely to curb investment Fixed investment has been a powerful driving force for growth across developing countries over the last decade, particularly in East Asia and the Pacific and in Europe and Central Asia, increasing its contribution to overall growth to almost 4 percentage points in recent years, and well outstripping contributions from trade (figure 1.11). But the intensification of the credit crisis in the United States has severely constrained finance to developing countries, with ominous implications for growth
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Investment
1 0 Net exports 21 1992 1994 1996 1998 2000 2002 2004 2006 2008a Source: World Bank data. a. Projected.