On Wednesday, the World Bank lowered its 2012 growth forecasts for both, emerging and developing economies, from its estimates of only six months ago. Moreover, it issued warning that the world is on the cusp of a new global recession that could be as bad as the crisis four years ago.
The World Bank warned that an escalation in Europe’s sovereign debt crisis, a new oil shock, or a “hard landing” in one of the larger developing economies could trigger new global recession. The bank added that the risks of those events makes even the bank’s lowered growth forecasts “very uncertain.”
A meltdown in financial markets triggered by the sovereign debt problems in Europe poses the greatest immediate risk, according to the report.
“An escalation of the crisis would spare no one,” said Andrew Burns, manager of global macroeconomics and lead author of the report. “Developed and developing country growth rates could fall by as much or more than in 2008 and 2009.”
A full-blown European crisis would shave a full 4 percentage points off of global growth, which would tip the global economy from a position of weak growth into recession.
But even if the crisis doesn’t worsen in Europe and other shocks are avoided, the World Bank projects that the global economy will grow at 2.5%, down from estimated growth of 2.7% last year and 4.1% growth in 2010.
The report says developed economies are expected to experience anemic growth of only 1.4%, down from the earlier estimate of relatively solid 2.7% growth.
The eurozone economies are expected to shrink 0.3%, rather than grow 1.8% as previously expected.
Excluding the eurozone, the rest of the developed world is expected to growth at 2.1%.
The World Bank, a multinational organization that provides financial assistance to developing countries, said emerging economies are forecast grow at a 5.4% rate this year, down from its earlier forecast of 6.2% growth.
