The outcome of austerity measures taken by eurozone countries to survive the financial crisis will significantly affect the economic performances of countries sensitive to the volatility of commodity prices, such as Indonesia, the World Bank says.
However, the development agency added, such countries should be able to weather the impacts of continued bad news from Europe if they focused on growth strategies, improving their business climates and making spending more efficient.
“Developing countries are not immune to the effects of a high-income sovereign debt crisis,” said Andrew Burns, manager of global macroeconomics at the World Bank, on Thursday.
Andrew said policy makers within the countries should ensure investors continued to distinguish between their risks and those of high-income countries.
“Currently the level of global [commodity trade] activity, although growing relatively rapidly, remains depressed. In certain countries we have seen a spare capacity of 10 percent of more,” he told reporters from six countries, including Indonesia, in a teleconference from Washington.
Burns said there was little tension between commodity supply and demand at present, meaning prices were unlikely to rise in the near future with the ongoing crisis in the eurozone.
As the single most important factor in commodity prices, the demand for oil would continue to shape dynamics in most markets, which currently are relatively soft following the Greek crisis, Burns said.
“For Indonesia: Coal, rubber and palm oil are important exports for the region. These are commodities that are closely linked to the price of oil. In the current context our forecast for the price of oil in real terms remains relatively stable.”
“We have [oil prices] as a point estimate in the US$75 per barrel in the real terms. We expect it to climb a little bit next year and start rising in 2012,” Burns said.
Nevertheless, he said, forecasting the level of commodity prices was “a very difficult thing to do”, adding that it was feasible for crude oil to stay between $60-$65 and $80-$85 over the next couple of years given the current situation in the world economy.
To return to growth, European countries, led by Germany, have introduced austerity measures aimed to reduce budget deficits through drastic cuts in social spending. Spain has also followed by planning to cut pay for public workers by 5 percent.
The move by both countries received applause from economists but also prompted a massive protest in Madrid earlier this week while workers in Germany called for mass demonstrations this weekend.
Burns said the prolonged rising sovereign debt could make credit more expensive and curtail investment and growth in developing countries, even though the impact of the European debt crisis had so far been contained.
The World Bank projects global GDP to expand by between 3.1 and 3.3 percent in 2010 and 2011, strengthening to between 3.2 and 3.6 percent in 2012, reversing the 2.1 percent decline in 2009.
Developing economies are expected to grow by between 5.9 and 6.1 percent every year from 2010-2012. Indonesia’s economy is estimated to grow 5.6 percent in 2010, 6.2 percent in 2011 and 6 percent in 2012.
