Eurozone crisis hits developing economies, warns World Bank

City A.M. Reporter
DEVELOPING countries should brace for a long period of financial market volatility and weaker growth as tensions rise over a worsening Eurozone debt crisis, the World Bank warned yesterday.

The report said developing nations should prepare for tougher times by reducing short-term debt, cutting budget deficits and moving to a more neutral monetary stance so that policies can be loosened quickly if needed.

“Global capital market and investor sentiment are likely to remain volatile over the medium term – making economic policy setting difficult,” said Hans Timmer, director of development prospects at the World Bank.

He said policymakers in developing countries should “move away from fire fighting to strengthen underlying growth potential” by focusing on reforms and infrastructure investment instead of reacting to day-to-day events in the world economy.

The Global Economic Prospects report forecast that growth in developing countries is likely to slow to 5.3 per cent in 2012 from 6.1 per cent last year.