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Global Economy Slowing Down: World Bank

Posted by Ram Kumar Shrestha on January 18, 2012

The global economy is heading for a slowdown, the World Bank said on Wednesday, as the eurozone’s sovereign debt crisis and weak growth in other major economies weigh on growth.

The bank now predicts that global growth will slow to 2.5% in 2012, down from an estimate of 3.6% from June, with a marked difference between developing and high-income countries, which are forecast to grow at 5.4% and 1.4%, respectively. The eurozone is likely to contract by 0.3%.

Commodity prices have begun to fall back and the growth in global trade is slowing – from 12.4% in 2010 to 6.6% in 2011, with a forecast of 4.7% in 2012, according to the World Bank’s Global Economic Prospects report.

Should the debt crisis in Europe get any worse, no country will be safe from the results, the bank said. At the beginning of the financial downturn it was thought that so-called “decoupling” – a lack of economic links between the global South and the industrialised world – might protect developing countries.

However, it was shown that the globalisation of financial liquidity, as well as of trade and supply chains, meant that the crisis was felt around the world. Countries need to prepare, as they have fewer policy instruments to be able to respond than they did in 2008, the bank warned.

“An escalation of the crisis would spare no-one,” Andrew Burns, manager of global macroeconomics at the World Bank and the report’s author, said in a release accompanying its launch. “Developed- and developing-country growth rates could fall by as much or more than in 2008/09.”

“The importance of contingency planning cannot be stressed enough.”

The World Bank’s report warns that the biggest risk to the global economy remains the ongoing eurozone crisis, and shows that volatility in European financial markets has spread to emerging markets, and added to the cost of borrowing for developing countries.

The risks to the euro area remain. Although Tuesday saw some moderation in market sentiment, Wednesday morning saw stock indices retreat again, as investors once again focused on the real threat that Greece may fail to secure a second bailout from the European Union and International Monetary Fund (IMF).

Read the Article at HuffingtonPost

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