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World Bank Downgrades Global Growth Forecast


The World Bank has scaled back its growth forecast for the global economy in 2012, as a result of Europe's ongoing debt problems. Although the world lending institution says the eurozone crisis appears to be under control, it is warning developing countries to brace for an economic slowdown and the possibility of a deepening economic crisis.

The world's economy is expected to grow more slowly this year.

Hans Timmer, head of development projects at the World Bank, projects overall growth in 2012 at around 2.5 percent - more than a full percentage point below the bank's initial estimate.

"This will be a very slow recovery and it will take many, many years before the damage done by the great recession and the damage done by the imbalances created in a boom period before the recession are undone," said Timmer.

Developing countries will continue to outpace growth in richer, more developed economies but emerging countries face significant risks. World Bank economist Lin Yifu says that includes reduced capital flows and trade if the European crisis worsens.

"The sovereign debt crisis in the eurozone has appeared to be contained, however the risks of global freezing up of capital markets as well as a global crisis, similar to what happened in 2008 are real," said Yifu.

Although the World Bank says high-income countries are primarily responsible for preventing a larger crisis, it says developing countries also have an obligation. Timmer says a crucial element is the role of Asian investment.

"To say it differently, the world is no longer dependent on the U.S. consumer or the European consumer, but it's increasingly dependent on what you could call the Asian investor," he said.

The World Bank says no region can escape the consequences of a serious downturn. It urged governments in developing countries to support cooperative trade mechanisms and develop contingency plans aimed at softening the impact of a potentially deeper and longer lasting crisis.

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