World economic growth 'set to slow'

Graph fallA recession in Europe and weaker growth in India, Brazil and other developing countries is likely to slow global economic growth, the World Bank said.

In its annual report, the bank substantially cut its forecasts for growth in both developed and poorer nations. It now projects that the global economy will expand 2.5% this year and 3.1% in 2013, down from a June forecast of 3.6% growth for both years.
The US economy will also suffer from slower global growth, the report said, though not by as much as developing countries.

"The world is very different than it was six months ago," said Andrew Burns, head of the bank's global economics team and lead author of the report. "This is going to be a very difficult year."

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 fuelling inflation. And a growing concern is that each trend is negatively affecting the other, Mr Burns said.

Europe's debt crisis has made investors nervous, so they are lending less to many emerging market governments. That has pushed up interest rates in those countries. International investors have also cut their investments in developing countries by 45% in the second half of last year compared with the same period in 2010.

At the same time, India, Brazil, Russia, South Africa and Turkey are taking steps to rein in borrowing in order to cool their economies. That might be prudent for those nations, Mr Burns said, but coming at the same time as Europe's troubles, the moves "create a fairly dangerous dynamic where these two trends feed on themselves" .

The bank now forecasts that developing countries will grow 5.4% this year, below its June estimate of 6.2%. Developed nations will expand only 1.4%, down from the bank's earlier 2.7% projection.

The 17 nations that use the euro, meanwhile, will shrink 0.3% in 2012, the bank said, down from an expansion of 1.9% that it forecast in June.

The US economy will grow 2.2% this year and 2.4% in 2013, the report said. In June, the World Bank said the US would grow 2.9% in 2012 and 2.7% in 2013. The weaker outlook in the US is in part because of the anticipated global slowdown but the World Bank also cites the ongoing fight in Washington over spending and taxes as a reason for the downgrade.
© 2012 Press Association
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