WBThe World Bank warned this week that global economic growth may tumble and urged developing countries to prepare for economic risks. The twice-yearly Global Economic Prospects report said that sovereign debt problems in the Eurozone and declining growth in large emerging economies, such as India and Brazil, are hurting the prospects for global growth.

The bank cut its growth forecast for developing countries for 2012 to 5.4% from 6.2% and for developed - or high-income - countries to 1.4% from 2.7%. Global growth is now projected at 2.5% for 2012 and 3.1% for 2013 - down substantially from previous estimates of 3.6% for both years.

The World Bank has already seen signs of slower growth: global trade has weakened, expanding an estimated 6.6% in 2011 (down from 12.4% in 2010). It is only expected to rise 4.7% in 2012. At the same time, commodity prices for energy, metals, minerals and agricultural products have declined 10%, 25% and 19% respectively since early 2011.

“Developing countries need to evaluate their vulnerabilities and prepare for further shocks, while there is still time,” Justin Yifu Lin, the World Bank’s Chief Economist, said in the report.

Developing countries have less flexibility for taking remedial measures than they did in 2008 and 2009, and may find themselves even more limited if international finance dries up and global conditions decline significantly.

“An escalation of the crisis would spare no-one. Developed - and developing - country growth rates could fall by as much or more than in 2008/09,” said Andrew Burns, Manager of Global Macroeconomics and lead author of the report. “The importance of contingency planning cannot be stressed enough.”

If the financial markets freeze up, a much wider financial crisis could hit private banks and financial institutions on both sides of the Atlantic, the report warned. It recommended prioritizing social safety net and infrastructure programs that are key to longer-term growth.

The World Bank projected the United States (the world's largest economy) would only grow 2.2% this year as it crawls back from the Great Recession. China would once again be the world's growth engine with growth at a slower 8.4% in 2012, down from 9.2% in 2011.


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