On the decline in the global economy

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On the decline in the Global economy Things are on their way down says World Bank 2005-04-06 With the possible exception of the Euro zone, 2004 was a good one. The global economy grew by 3.8% last year, which was the best run in four years. For developing countries, it was a superb year, the best in 30 years, with growth averaging 6.6%. China enjoyed a 9.5% expansion, with India and Russia both seeing a 7% growth rate. But all good things have to come to an end, and it looks like 2005 will see a marked slow down. With, the US rate of interest expected to continue to rise and with the high price of oil taking its toll, the World Bank reckons global growth will be 3.1%. Developing countries, warned the bank, face a potentially crippling disaster. The dollar makes up too high a percentage of their foreign currency reserves. The World Bank reckons that total foreign reserves held by developing countries is in the region of $1,600bn, and that around 70% of the total is in dollars. China in particular is the most vulnerable, holding around 40% of that total. With the US balance of trade still in massive deficit, it is feared that the greenback could fall much further, and in the process hit the developing countries hard. In a way China could be the architect of its own crisis. The Chinese currency is pegged against the dollar, and as a result, as the greenback falls against a basket of currencies, it stays the same against the yuan. As a result, the big US trade deficit with China has not been altered by the falling dollar. But, if the dollar does go into free fall, then this policy could backfire on China. The World Bank also warned that a 2% increase in interest rates could all but wipe out South American growth this year.
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On the decline in the Global economy