'Global economic power shifting to third world'

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Global economic power is likely to shift to high growth and densely populated economies as emerging market growth appears less susceptible to the current slowdown in the US, says a report by World Economic Forum.

"Emerging market growth appears less susceptible to a slowdown in the US but low-income countries face risks from inflation in the form of loss of domestic market growth, wage increase pressures, and greater societal and political instability," World Economic Forum said in its report titled 'Global Growth@Risk 2008'.

Financial market crisis that began in early 2007, has resulted in a write off of over USD 500 billion by banks. "The short-term outlook for global economic growth looks bleak, largely due to the sub-prime crisis and concerns about inflation and a possible slowdown in 2009 have engendered a great deal of uncertainty," the reported added.

The report said global growth forecasts would reflect a shift of economic power to high growth and highly populated economies and wealthy oil producing nations.

"The biggest emerging markets, China and India, have both seen strong growth in domestic consumption, and have also improved productivity and diversified their trading partners to neighbouring and other economies, making them less reliant on US demand than in the past," the report added.

The IMF outlook for 2009 still forecasts strong growth in almost all the major emerging markets, with China still set to grow at 10 per cent in 2009 and India expected to achieve year-on-year growth of 8 per cent.

Rising inflation, hovering at double digit in most emerging markets, has been cause for concern. However, with the decline in energy and food prices over the past months, headline inflation rates are expected to drop in early 2009, the report added.

Though the possibility of capital outflows from emerging markets are there, large capital inflows seeking quick profits are also reaching emerging economies.

The report further said "capital inflows in emerging countries that contributed to the expansion in the last few years may now become more unstable if there is an increase in speculative inflows".

This shift in economic power is giving rise to a rapidly growing global middle class, whose spending power will drive the growth, the report said, adding that governments and business need to create ways to make this coming boom in consumption sustainable.