Thu, Jan 19, 2012 - Page 1 News List

Global economic slump possible, World Bank says

AP, BEIJING

The World Bank warned yesterday of a possible slump in global economic growth and urged developing countries to prepare for shocks that could be more severe than the 2008 crisis.

The bank cut its growth forecast for developing countries this year from 6.2 percent to 5.4 percent and for developed countries from 2.7 percent to 1.4 percent. For the 17 eurozone countries, it forecast a contraction, cutting their growth outlook from 1.8 percent to minus-0.3 percent.

Global growth could be hurt by a recession in Europe and a slowdown in India, Brazil and other developing countries, the bank in Washington said. It said conditions might worsen if more European countries are unable to raise money in financial markets.

“The global economy is entering into a new phase of uncertainty and danger,” World Bank chief economist Justin Yifu Lin (林毅夫) said. “The risks of a global freezing up of capital markets as well as a global crisis similar to what happened in September 2008 are real.”

Developing countries that have enjoyed relatively strong growth while the US and Europe have struggled, could be hit hard, Lin said.

He said they should line up financing in advance to cover budget deficits, review the health of their banks and emphasize spending on social safety nets.

Many governments are in a weaker position than they were to respond to the 2008 global crisis because their debts and budget deficits are bigger, Lin said at a news conference.

In the event of a major crisis, “no country will be spared,” Lin said. “The downturn is likely to be longer and deeper than the last one.”

The bank’s outlook in its Global Economic Prospects report issued twice a year adds to mounting gloom amid Europe’s debt crisis and high US unemployment.

“It is very likely that most European countries, including Germany, entered recession in the fourth quarter of last year,” the World Bank’s director of development projects Hans Timmer said.

Investors cut investments in developing countries by 45 percent in the second half of last year, compared with the same period in 2010, Timmer said.

The report follows similar warnings about the global economy by its sister organization, the IMF, and private sector forecasters.

For the US, the bank cut this year’s growth forecast from 2.9 percent to 2.2 percent and for next year from 2.7 percent to 2.3 percent. As reasons, it cited the anticipated global slowdown and the on-going fight in Washington over spending and taxes.

Global growth might suffer from the interaction of Europe’s troubles and efforts by China, India, South Africa, Russia and Turkey to cool rapid growth and inflation with interest rate hikes and other measures, the bank said.

China’s expansion slowed to a two-and-a-half year low of 8.9 percent in the three months ending last month from 9.1 percent in the previous quarter.

As Europe weakens, developing countries could find “their slowdown might be larger than is necessary to cope with inflation pressures,” Lin said.

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