Expect a eurozone recession and global slowdown says World Bank

Posted on 18 Jan 2012 by Tim Brown

The World Bank yesterday warned that the world market is at risk of returning to recession in both developed and developing countries due to the crisis in the eurozone. 

In its twice-yearly report released late Tuesday, The World Bank lowered its growth forecasts for 2012 to 5.4% for developing countries, 1.4% for high-income countries, and -0.3% percent for the eurozone. This is a stark revision of its estimates from last June when it expected 1.8% growth for Europe’s single currency.

The US economy will grow 2.2 percent this year and 2.4 percent in 2013, the report said. In June, the World Bank said the U.S. would grow 2.9 percent in 2012 and 2.7 percent in 2013.

The report noted two major reasons for the projected global slowdown: Europe’s debt crisis has worsened. And several big developing countries have taken steps to prevent growth from overheating and fueling inflation.

“Europe appears to have entered recession, and growth in several major developing countries (Brazil, India and to a lesser extent Russia, South Africa and Turkey) has slowed,” the bank said. The Washington-based institution went on to say that governments should prepare for a downturn as bad as in 2008 following the collapse of Lehman Brothers.

“An escalation of the crisis would spare no one,” said Andrew Burns, manager of global macroeconomics at the World bank and the report’s author. “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. It is clear that whatever probability is attached to this downside scenario, it has increased since June last year.

“Developing countries should hope for the best and plan for the worst. If these downside risks materialised there is not much developing countries can do to prevent it. But they can prepare for it.” He added that such countries should be drawing up list of public spending priorities and stress testing their banks.

The report added to Europe’s financial headaches, coming less than a week after rating agency Standard & Poor’s decided to downgrade nine eurozone economies’ perceived creditworthiness in a single day.