Global economy slowly moving towards solid growth

The global economy in 2011 and 2012 is shifting into a phase of slower but solid growth, with India and China contributing towards almost half of the global growth, says the World Banks latest Global Economic Prospects 2011 report.

The World Bank estimates that global GDP, which expanded by 3.9 percent in 2010, will slow down to 3.3 percent in 2011 before reaching 3.6 percent in 2012.

Developing countries are expected to grow by seven percent in 2010, six percent in 2011 and 6.1 percent in 2012.

They will continue to outstrip growth in high-income countries that will expand by 2.8 percent in 2010, 2.4 percent in 2011 and 2.7 percent in 2012, the report said.

Besides, steered by India, the South Asian region is projected to post 7.9 percent GDP growth on average over the 2011-2012 fiscal years. This compares with estimated growth of 8.7 percent in fiscal year 2010, against the estimated 9.2 percent growth in 2010.

The Indian economy is projected to grow at 8.5 percent in 2011 and 8.7 percent in 2012, according to the report.

A recent move toward tighter monetary policy will likely need to be pursued further, given the regions high fiscal deficits (the largest among developing regions), high inflation and deteriorating current accounts, it said.

According to Global Economic Prospects 2011, the GDP in most developing countries has regained levels that would have prevailed if there were no boom-bust cycle.

The reports call on countries to implement corrective domestic policies to treat high household debt, unemployment and, weak housing and banking sectors, which may otherwise mute the recovery.

"On the upside, strong developing-country domestic demand growth is leading the world economy, yet persistent financial sector problems in some high-income countries are still a threat to growth and require urgent policy actions," said Justin Yifu Lin, the World Banks chief economist and senior vice president for development economics.

Net international equity and bond flows to developing countries rose sharply in 2010, rising by 42 percent and 30 percent respectively, with nine countries receiving the bulk of the increase in inflows, it said, as against a modest rise in FDI flows.

"Heavy inflows to certain big middle-income economies may carry risks and threaten medium-term recovery, especially if currency value rises suddenly or if asset bubbles emerge," Timmer said.