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Thursday April 07, 08:33
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U.S. deficits and rising interest rates threaten developing economies
(by Natali Novak)
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The optimistic growth rate of developing economies is threatened by continued high U.S. budget and trade deficits which cause rise in interest rates and weakening of the dollar, the World Bank said in Wednesday’s report on the global economic outlook.
The average economic growth in China, Russia, India and other developing economies already seems to drop from 6.6 % in 2004 to 5.2 % next year. The impact of U.S. deficits could be just an additional burden for them, the bank forecasts.
Latin America seems to suffer the biggest problems if interest rates rise by 2 %. In such circumstances the 4 % growth projection for the region next year "would completely disappear," state the bank’s economists.
The U.S. deficit in trade and investment income was US$665.9 billion last year, an all-time high, while the budget deficit surged to a record US$412 billion.
However, the report pictured some positive tendencies of developing economies referring to lowered trade barriers, reasonable spendings and steady foreign debt levels. Their total foreign reserves increased by 30 % last year to US$1.6 trillion, the report showed.
The growth of developing economies overtook richer countries such as the U.S. last year due to lower dependence on exports and higher domestic consumption, the report said. It marked that companies in India, China and Brazil are getting features of multinational and mature investing businesses.
The fact that the survey was released at briefings in Beijing and Paris reflects the first time the World Bank had conducted such a procedure in China.
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