20 Jul

US Deficits May Hurt Others

If rates rise rise, and that’s what ultimately will happen if there’s no U.S. policy adjustment, then all developing countries will suffer.

Continued high U.S. budget and trade deficits could sharply cut economic growth in developing countries by driving up interest rates and weakening the dollar, the World Bank said today.

Even without the impact of U.S. deficits, average economic growth in China, Russia, India and other developing economies is expected to decline from a three-decade high of 6.6 percent in 2004 to 5.2 percent next year, the bank said in a report on the global economic outlook.

But it said that fall could be sharper if financial markets respond to continued heavy U.S. borrowing by pushing up interest rates.

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