WB lowers global growth outlook

WASHINGTON - The World Bank cut its global growth forecast by the most in three years, saying that a recession in the euro region threatens to exacerbate a slowdown in emerging markets such as India and Mexico.

By (Bloomberg)

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Published: Thu 19 Jan 2012, 11:22 PM

Last updated: Tue 7 Apr 2015, 11:21 AM

The world economy will grow 2.5 per cent this year, down from a June estimate of 3.6 per cent, the Washington-based institution said. The euro area may contract 0.3 per cent, compared with a previous estimate of a 1.8 per cent gain. The US growth outlook was cut to 2.2 per cent from 2.9 per cent.

“Even achieving these much weaker outturns is very uncertain,” the World Bank said in its Global Economic Prospects report released today in Asia and yesterday in the US “The downturn in Europe and weaker growth in developing countries raises the risk that the two developments reinforce one another, resulting in an even weaker outcome.”

China, the world’s second-biggest economy, reported today that foreign direct investment declined in December by the most since July 2009, underscoring the World Bank’s warning that developing economies should “prepare for the worst.” Home prices fell in 52 of 70 cities in December from November, statistics bureau data showed.

Turmoil in European still has the potential to trigger a global financial crisis reminiscent of 2008, according to the World Bank.

The lender’s growth forecast assumes that the euro countries “muddle through,” Justin Lin, the World Bank’s chief economist, said in Beijing. If they fail to do so, with conditions in three or four of the nations deteriorating and the capital market freezing up, “the downturn is likely to be longer and deeper than the last one,” with no country spared, he said.

The estimated global expansion would compare with growth of 2.7 per cent in 2011 and 4.1 per cent in 2010, and a contraction of 2.3 per cent in 2009, the World Bank estimates. The revision is the largest since January 2009, when the lender cut its global estimate for that year by 2.1 percentage points.

“Despite the significant measures that have been taken, the possibility of a further escalation of the crisis in Europe cannot be ruled out,” the World Bank said.

The World Bank sees a global expansion of 3.1 per cent in 2013, 0.5 per centage point lower than previously forecast.

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