The World Bank has sharply cut its global economic growth expectations to just 2.5 percent this year and said Europe is probably already in recession.
In its latest forecasts the Bank warned developing countries that they should prepare for the “real” risk that an escalation in the euro area debt crisis could tip the world into a slump similar to the global downturn in 2008/09.
“The sovereign debt crisis in the euro zone appears to be contained,” Justin Lin, the chief economist for the World Bank, said.
“However, the risk of a global freezing-up of the markets and as well as a global crisis similar to what happened in September 2008 are real.”
The World Bank predicted world economic growth of 2.5 percent in 2012 and 3.1 percent in 2013, well below the 3.6 percent growth for each year projected in June.
“We think it is now important to think through not only slower growth but sharp deteriorations, as a prudent measure,” said Hans Timmer, director of development prospects at the bank.
The World Bank said if the euro area debt crisis escalates, global growth would be about 4 percentage points lower.
It forecast high-income economies would expand just 1.4 percent in 2012 as the euro area shrinks 0.3 percent, sharp downward revisions from growth forecasts last June of 2.7 percent and 1.8 percent, respectively.
It cut its forecast for growth in developing economies to 5.4 percent for 2012 from its previous forecast of 6.2 percent, saying expansion in Brazil and India and to a lesser extent Russia, South Africa and Turkey, had slowed already.
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