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The World

March 30, 2011

Developing economies' lead over rivals poses risks

(Continued)

WASHINGTON —

In 2009, developing countries continued to expand, eking out 2.6 percent growth, while rich economies shrank 3.4 percent. Last year, developing countries grew 7.1 percent, rich ones 3 percent. And this year the International Monetary Fund expects developing countries to outgrow the rich world 6.5 percent to 2.5 percent.

Japan's wealthy economy faces new uncertainty after the quake and a tsunami devastated the country's northeastern coastline and raised the threat of radioactive contamination at a damaged nuclear plant.

The World Bank says developing economies accounted for 45 percent of global growth last year, the first full year since recession ended in June 2009. They contributed just 14 percent of worldwide growth in the first full year after the deep 1981-82 recession, 11 percent after the 1990-91 recession and 38 percent after the 2001 recession, World Bank numbers show.

Rich countries continue to lag because of their devastating financial crisis. Their banks are still writing off bad debts. Their governments are saddled with gaping deficits — the result of shrunken tax revenue, the cost of bailing out banking systems, rising health care costs and the need to stimulate their economies. U.S. consumers are still paying the bills they charged up during the mid-2000s debt binge.

Nearly 14 million Americans are unemployed, 1.8 million of them for two years or more. They're people like John Dail Galvin, who lost a computer specialist job at a health care company in December 2008. Galvin, 48, has burned through savings and unemployment benefits. He says he's facing a foreclosure on his house in McHenry, Ill.

"I've been working since I was 15 years old," he says. "I've never seen it this bad."

Britain, Ireland and Spain have cut spending, raised taxes or both to narrow budget gaps. The United States, slowed by a budget deficit that could reach a record $1.65 trillion this year, is debating its own spending cuts. The World Bank warns that austerity measures will trim 0.7 percentage points from growth in rich countries this year and 0.4 percentage points in 2012.

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