By Max Clarke

The Developing World must focus on the challenges of rising commodity prices and inflation, while the West continues to recover from the financial crisis.

Unemployment and constrained household incomes in particular pose challenges to Europe, as the continent struggles to develop a sustainable financial sector, the World Bank observed in the June 2011 edition of Global Economic Prospects.

“The financial crisis for most developing countries is over,” said Andrew Burns, manager of Global Macroeconomics and lead author of the report. “Efforts must now focus on returning monetary policy to a more neutral stance and rebuilding the fiscal cushions that allowed developing countries to respond to the crisis with counter-cyclical policies. Increasingly, medium-term prospects will depend on the kind of slow-acting social, regulatory and infrastructural reforms that generate improved productivity and sustainable growth.”

Growth is expected to increase across the world, though near record high oil prices, combined with the continued struggles across the Middle East ‘have cut sharply into domestic growth’. Egypt and Tunisia are forecast grow by 1% and 1.5% respectively.

The Southeast Asian ‘Tigers’ continue to perform well, pushing 9.3% annual GDP growth, and for Sub-Saharan Africa, growth is running at double the population growth rate making the region among the fastest growing in the world. Growth in Angola alone topped 18% in the last decade before decreasing, though the rate remains above 10%.

“Developing countries have been resilient despite remaining tensions in high-income countries,” said Hans Timmer, director of Development Prospects at the World Bank. “But many developing economies are operating above capacity and at risk of overheating, most notably in Asia and Latin America. Monetary policy has responded, but fiscal and exchange rate policy may need to play a bigger role to keep inflation in check.”

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