World Risk Developments February 2011: Spotlight on global recovery, food prices, Egypt
The February issue of EFIC’s newsletter, World Risk Developments, examines the outlook for the world economy and food prices, and the effects of the uprising on Egypt's economy.
It notes that the January update of the IMF's world economic outlook predicts world growth of 4½% in both 2011 and 2012. ‘Such a forecast implies three consecutive years of above-trend growth over 2010-12: not a bad rebound from the 2008-09 “Great Recession” ’, says EFIC senior economist Dougal Crawford.
He warns, however, that growth rates will probably vary significantly between regions, with emerging economies outpacing advanced ones by a significant margin. ‘There are also risks that could materialise, such as an escalation of the eurozone financial crisis, which could act as a renewed drag on growth’, he adds.
World food prices have surged 40% since mid-2010 and are now above their mid-2008 peaks. Crawford notes that 'Countries feeling the pinch most are poor net food importers. More expensive food doesn’t just impose hardship on poor households in these countries, it can lead to balance of payments strains from higher import costs and fiscal strains where food is subsidised through price controls.’
The price rises can also spark civil unrest. ‘They are a factor contributing to the present unrest in the Middle East’, Crawford says.
What effect is the unrest having on Egypt’s economy? ‘A considerable one’, says EFIC’s chief economist Roger Donnelly. ‘It has pushed the economy into recession, and if there are further political setbacks, it could also lead to financial crisis. Fortunately, Egypt's balance of payments is quite strong and the banking system liquid, so there are some buffers to absorb the economic shocks. But the government has big financing needs and if the political crisis escalates, it could have difficulty meeting those needs in a context where investors are withdrawing their money from banks and financial markets, and indeed from the country.’
In other stories, the newsletter looks at the sovereign debt troubles in the eurozone, overheating in Vietnam, the political crisis in Cote d'Ivoire, and a stockmarket plunge in Bangladesh.