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World Bank Warns Emerging Economies Of Rough Road Ahead

  • RFE/RL

The World Bank has warned emerging economies from Central Asia to Africa that financial storms could make the economic path forward more difficult in coming months.

The entire developing world will experience weaker economies and more market volatility, the bank said, with the hardest hit regions being developing Europe and Central Asia, where the Russian recession and the conflict in eastern Ukraine are wreaking economic havoc.

"We are advising nations, especially emerging economies, to fasten seat belts," said World Bank economist Kaushik Basu.

The principle culprit, he said, was the U.S. central bank, which is moving towards raising interest rates for the first time since the mid-2000s.

The U.S. Federal Reserve's extremely low interest rates have fed a worldwide stock and investment boom for years. The good times have been particularly heady in the developing world, with growth soaring in countries from Turkey to South Africa.

As the Fed drives up interest rates in coming months, those economies will pay more to borrow, and incoming investment will be harder to attract, making growth more difficult.

Moreover, higher U.S. rates will put more downward pressure on non-U.S. currencies that have already fallen significantly against the dollar over the past year.

The World Bank urged the Fed to considering putting off a rate increase until next year when it said the world economy should be heathier.

Right now, growth is barely picking up in Europe and Japan, while it is decelerating markedly in China. It even took an unexpected time out in the first quarter in the United States this year.

"The rate hike can wait a little," International Monetary Fund chief Christine Lagarde said last week, noting that there are few signs of a pick-up in wages and inflation in the United States despite the Fed's concerns.

Basu also said the Fed should wait, even though higher rates may be needed eventually to prevent an uptick in inflation.

"Changes which in the long run...may be good for the global economy, can cause strain and even a slowdown in the short run brought about by the challenges of transition," he said.

With reporting by dpa and AFP
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