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Dublin: 14 °C Tuesday 20 August, 2019

World Bank warns of global growth slowdown

It could be worse than 2008.

World Bank's Justin Yifu Lin and Hans Timmer
World Bank's Justin Yifu Lin and Hans Timmer
Image: Andy Wong/AP/Press Association Images

THE WORLD BANK has today warned 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 to 5.4 per cent from 6.2 per cent and for developed countries to 1.4 per cent from 2.7 per cent.

It cut the growth outlook for the 17 countries that use the euro currency to -0.3 per cent from 1.8 per cent.

Global growth could be hurt by a recession in Europe and a slowdown in India, Brazil and other developing countries, the Washington-based bank 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,” said the bank’s chief economist, Justin Yifu Lin.

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 to be hit hard

Developing countries that have enjoyed relatively strong growth while the United States and Europe struggled might 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 U.S. unemployment.

Even Germany

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

Investors have cut investments in developing countries by 45 per cent 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 organisation, the International Monetary Fund, and private sector forecasters.

For the United States, the bank cut this year’s growth forecast to 2.2 per cent from 2.9 percent and for 2013 to 2.4 percent from 2.7 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 per cent in the three months ending in December from the previous quarter’s 9.1 per cent.

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

A global downturn would hurt developing countries by driving down prices for metals, farm goods and other commodities and demand for other exoprts, the World Bank said.

Slower growth is already visible in weakening trade and commodity prices, the World Bank said.

Global exports of goods and services expanded an estimated 6.6 percent in 2011, barely half the previous year’s 12.4 percent rate, the bank said. It said the growth rate is expected to fall to 4.7 percent this year.

Prices of energy, metals and farm products are down 10 to 25 percent from their peaks in early 2011, Timmer said.

The United States is already feeling some pain from Europe’s crisis. Exports to Europe fell 6 per cent in November, the Commerce Department said last week.

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Associated Press

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