Image: World Bank Chief Economist Justin Yifu Lin, right, speaks as Hans Timmer, director of development prospects at the World Bank, left, looks on
Andy Wong  /  AP
World Bank Chief Economist Justin Yifu Lin, right, speaks as Hans Timmer, director of development prospects at the World Bank, left, looks on during a press conference on Global Economic Prospects 2012 at the World Bank Office in Beijing, China.
updated 1/18/2012 7:37:29 AM ET 2012-01-18T12:37:29

The World Bank warned Wednesday of a possible slump in global economic growth and urged developing countries to prepare for shocks that could be more severe than the 2008 crisis.

For the United States, the bank cut this year's growth forecast to 2.2 percent from 2.9 percent and for 2013 to 2.4 percent from 2.7 percent.

As reasons, it cited the anticipated global slowdown and the on-going fight in Washington over spending and taxes.

The bank also cut its growth forecast for developing countries this year to 5.4 percent from 6.2 percent and for developed countries to 1.4 percent from 2.7 percent.

For the 17 countries that use the euro currency, it forecast a contraction, cutting their growth outlook to -0.3 percent from 1.8 percent.

Global growth could be hurt by a recession in Europe and a slowdown in India, Brazil and other developing countries, the Washington-based bank said.

It said conditions might worsen if more European countries are unable to raise money in financial markets.

"The global economy is entering into a new phase of uncertainty and danger," said the bank's chief economist, Justin Yifu Lin. "The risks of a global freezing up of capital markets as well as a global crisis similar to what happened in September 2008 are real."

Separately Wednesday, the government of Germany — Europe's biggest economy — announced it had lowered its growth forecast for this year from 1 percent to 0.7 percent. However, it also predicted growth of 1.6 percent in 2013.

Developing countries that have enjoyed relatively strong growth while the United States and Europe struggled might be hit hard, Lin said. He said they should line up financing in advance to cover budget deficits, review the health of their banks and emphasize spending on social safety nets.

Many governments are in a weaker position than they were to respond to the 2008 global crisis because their debts and budget deficits are bigger, Lin said at a news conference.

In the event of a major crisis, "no country will be spared," Lin said. "The downturn is likely to be longer and deeper than the last one."

The bank's outlook — in its "Global Economic Prospects" report issued twice a year — adds to mounting gloom amid Europe's debt crisis and high U.S. unemployment.

"It is very likely that most European countries, including Germany, entered recession in the fourth quarter of last year," said Hans Timmer, the World Bank's director of development projects.

Investors have cut investments in developing countries by 45 percent in the second half of last year, compared with the same period in 2010, Timmer said.

The report follows similar warnings about the global economy by its sister organization, the International Monetary Fund, and private sector forecasters.

Global growth might suffer from the interaction of Europe's troubles and efforts by China, India, South Africa, Russia and Turkey to cool rapid growth and inflation with interest rate hikes and other measures, the bank said.

China's expansion slowed to a 2 1/2-year low of 8.9 percent in the three months ending in December from the previous quarter's 9.1 percent.

As Europe weakens, developing countries could find "their slowdown might be larger than is necessary to cope with inflation pressures," Lin said.

Developing countries hurt
A global downturn would hurt developing countries by driving down prices for metals, farm goods and other commodities and demand for other exoprts, the World Bank said.

Major Market Indices

Slower growth is already visible in weakening trade and commodity prices, the World Bank said.

Global exports of goods and services expanded an estimated 6.6 percent in 2011, barely half the previous year's 12.4 percent rate, the bank said. It said the growth rate is expected to fall to 4.7 percent this year.

Prices of energy, metals and farm products are down 10 to 25 percent from their peaks in early 2011, Timmer said.

The United States is already feeling some pain from Europe's crisis. Exports to Europe fell 6 percent in November, the Commerce Department said last week.

AP Economics Writer Christopher S. Rugaber in Washington contributed.

Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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