WASHINGTON (Reuters) - Protectionism and populist policies in the developing world could rise as countries face increasing head winds from a growing European sovereign debt crisis and a weakening economic recovery in the United States, World Bank President Robert Zoellick said on Thursday.
Zoellick warned another crisis was building at a time when the budgets of many developing economies had not fully recovered from the 2008 financial storm, adding to their fiscal strains.
He told Reuters in an interview more than half of developing countries’ budgets have deteriorated by 2 percent of gross domestic product since 2007, and more than 40 percent of developing nations now have government deficits in excess of 4 percent of GDP.
“If the situation deteriorates further, then developing countries’ growth could turn down, their asset prices could drop and then their non-performing loans could increase,” Zoellick said.
“With these pressures and prospects we have to anticipate possible protectionist pressures, beggar-thy-neighbor policies and a risk of a retreat to Populism,” he added.
While he still believed advanced economies could avoid a double-dip recession, Zoellick said his concerns were growing unless they acted forcefully to tackle their problems.
“A crisis made in the developed world could become a crisis for developing countries,” he said. “Europe, Japan and the United States must act to address their big economic problems before they become bigger problems for the rest of the world.
“Not to do so would be irresponsible,” he added.
Developing economies, he said, had grown more resilient over the past decade and were in a better position to withstand another crisis but they were still concerned about the spillover effects from troubled advanced economies.
Some of the largest impacts to poorer countries would be felt through a decline in global demand, which would affect trade and commodity prices.
Zoellick said $6.1 trillion was wiped out globally in stock market declines over the past couple of months, which is equivalent to 10 percent of global GDP.
A meeting of finance leaders from emerging market economies — China, India, Russia, South Africa and Brazil — in Washington on Thursday called for ‘decisive action’ by advanced countries to tackle the deterioration in their economies.
“The best role for the BRICS countries is the same as the best role for any country, which is to focus on what they need to do at home to get through the current financial dangers and to move on to long-term growth,” he said.
Zoellick said he was paying close attention to consumer and business confidence in emerging economies.
Editing by Neil Stempleman