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Economy

World Bank predicts slower global growth, eurozone recession

The World Bank has lowered its 2012 economic growth estimates across the board, predicting a recession within the eurozone. The report also warned of 'significant' slowdowns in key developing markets.

A close up shot of a 1 euro coin

The World Bank predicts a recession for the eurozone in 2012

The World Bank announced on Wednesday that it now expects lower levels of global growth in 2012 and 2013 than previously predicted. According to the Global Economic Prospects report, the 17-member eurozone - saddled with a string of debt-related difficulties - was set to reenter recession in 2012.

The World Bank lowered its growth forecasts for 2012 to 5.4 percent for developing countries, 1.4 percent for high-income countries, and negative 0.3 percent for the eurozone. Its previous estimates, released last June, stood at 6.2 and 2.7 percent, with 1.8 percent growth for Europe's single currency bloc.

"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 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.

"The downturn in Europe and weaker growth in developing countries raises the risk that the two developments reinforce on another, resulting in an even weaker outcome," the bank said.

Contingencies are key

The World Bank also warned that governments might not be as well placed to respond with financial assistance as was the case during the recession of 2008 and 2009.

Despite describing the threat of a freeze on global credit markets - similar to the aftermath of the fall of US investment bank Lehmann Brothers - as "contained for the moment," the Global Economic Prospects report also made it clear that the potential for similar problems remained.

"An escalation of the crisis would spare no-one. Developed- and developing-country growth rates could fall by as much or more than in 2008/09," said the report's lead author Andrew Burns, the World Bank's Manager of Global Macroeconomics. "The importance of contingency planning cannot be stressed enough."

East Asia and the Pacific, driven by China, remained the region with the highest growth forecast for the year (7.8 percent) while sub-Saharan Africa was the only region to receive an improved forecast for 2012 (5.3 percent growth) than for 2011 (4.9 percent).

Author: Mark Hallam (dpa, Reuters)
Editor: Chuck Penfold

DW.DE