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Africa: 'U.S. Recession a Threat to Third World Exports'

Martin Luther Oketch

17 January 2008

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Kampala — A weaker US dollar and rising financial market volatility will be the greatest danger to revenue growth for developing countries, the World Bank has warned. The World Bank Global Economic Prospect 2008 report cautions developing countries to use to use built up foreign reserves and other buffers they have in the past years to absorb unexpected shocks from the above global problems.

"A weaker US dollar, the spectre of an American recession and rising financial-market volatility could cast a shadow over this soft landing scenario for the global economy. These risks would cut export revenues and capital inflows for developing countries, and reduce the value of their dollar-investments abroad. In this context, the reserves and other buffers that developing countries have built up in past years may be needed to absorb unexpected shocks," reads the Word Bank Global Economic Prospects 2008.

The World Bank predicts that in 2008 global economic growth is expected to be 3.3 percent.

The stability of the US economy - the world's largest - is vital as an engine for global economic growth and stability. Fears of a recession, a weakening dollar and a slump of markets would substantially affect developing countries whose economies largely depend on western subsidies.

"Overall, we expect developing-country growth to moderate only somewhat over the next 2 years. However, a much sharper US slowdown is a real risk that could weaken medium-term prospects," it said.

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