The World Bank cut its global growth forecast in both developed and poorer nations by the most in three years, in its twice-yearly report issued late on Tuesday, saying that a recession in the euro region threatens to exacerbate a slowdown particularly in several major developing countries.
“Europe appears to have entered a recession, and grown in several major developing countries (Brazil, India and to a lesser extent Russia, South Africa and Turkey) has slowed,” the bank said as it updated forecasts made last June.
The world economy will grow 2.5 percent this year, down from a June estimate of 3.6 percent, the Washington-based institution said. The euro area may contract 0.3 percent, compared with a previous estimate of a 1.8 percent gain. The U.S. growth outlook was cut to 2.2 percent from 2.9 percent.
“The world is different than it was six months ago”, said Andrew Burns, head of the bank’s global economics team and lead author of the report. “This is going to be a very difficult year.”
Two major reasons for the projected global slowdown are noted in the report: Europe’s debt crisis has worsened and several big developing countries have taken steps to prevent growth from fueling inflation.
Economies in developing countries will continue to out-pace those of wealthier, developed countries, according to the World Bank, but the Bank also lowered its forecasts for growth in these countries to 5.4 per cent in 2012 and 6 per cent in 2013 – this is down from previous estimates of 6.2 per cent and 6.3 per cent respectively.
The report also noted that “the downturn in Europe and weaker growth in developing countries raises the risk that the two developments reinforce one another, resulting in an even weaker outcome”. – It also said that while Europe is moving toward long-term solutions to its debt problems, the markets remain skittish.
It also noted the failure so far to resolve high debts and deficits in Japan and the United States and slow growth in other high-income countries, and cautioned those facts could trigger sudden shocks in the global economy.
The 2012 forecast for Japan was cut to 1.9 per cent growth from 2.6 percent in June. China’s growth will slow to 8.4 percent this year, the same as an interim revised projection released in November.
In addition, political tensions in the Middle East and North Africa could disrupt oil supplies and add another blow to global prospects, the World Bank noted of the challenges facing the economy.
“Although contained for the moment, the risk of a broader freezing up of capital markets and a global crisis similar in magnitude to the Lehman crisis in 2008 remains,” the World Bank said.
Should that happen, it said developing countries are more vulnerable than they were in 2008 because they could find themselves facing reduced capital flows and softer trade.
Slower global expansion is already showing through softer trade figures and lower commodity prices, according to the World Bank.
“No country or region will escape the consequences of a serious downturn”, said the World Bank, adding that developing countries must now plan how to soften the impact of a potential crisis.
- HUMNEWS Staff, Agencies