Global slowdown to hit emerging markets: World Bank

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World Bank has warned of slow global economic growth due to recession in European countries and weaker growth in India, Brazil and other developing countries.

The bank recently issued its twice yearly report which suggests global economy will expand at 2.5% this year and 3.1% in 2013, which is down from the earlier forecasts of 3.6% growth for both years. It has also substantially cut down its forecast for growth in both developed and poorer nations.

The report also said that eurozone growth may contract 0.3%, compared with previous estimates of 1.8% expansion. Also the US growth is being cut to 2.2% from 2.9% earlier.

In its Global Economic Prospect Report, World Bank said: ?Even achieving these much weaker out turns is very uncertain. The downturn in Europe and weaker growth in developing countries raise the risk that the two developments reinforce one another, resulting in an even weaker outcome.?

Present Europe sovereign debt crises have made investors nervous to lend money to many emerging markets, which has led to increase in interest rate in the country.

Meanwhile, international investors have also cut down their investment ideas in developing countries by 45 percent in the second half of last year, compared to the same period of 2010.

World Bank?s Chief Economist, Justin Yifu Lin, warned developing countries could be hit harder by downturn than they were ?during the 2008 global crises and should prepare for possible shocks. He also urged countries to line up financing for budget deficit in advance, review the health of their banks and emphasise spending more on social safety nets.

?No country will be spared. The downturn is likely to be longer and deeper than the last one,??Liu warned?at a news conference in Beijing.

EUROZONE EFFECT

With ongoing European crises, US has already started its pain. Exports to Europe have already fallen to 6% in November. Also, the Global trade has fallen because banks are cutting back on a type of lending known as trade financing.

The World Bank report added: ?Despite the significant measures that have taken up, the possibility of further escalation of the crises in Europe cannot be ruled out.?

The MSCI All-Country World Index has also declined 9.4%, the first time drop since 2008 global meltdown. The major reason behind this fall is the rising European crises and economic slowdown worldwide which weighed in investor demand for riskier assets.

Andrew Burns, Head of World Bank, said: ?Some of the big developing countries that have been the motor of growth in post 2008-2009 have slowed down. Melting growth in these countries is mostly the result of domestic policies such as higher interest rates, which were desirably engineered because these countries were overheating.?

According to the report, emerging markets are also feeling the pinch of eurozone debt crisis. Stock markets of developing economies have lost 8.5% in early January compared to the level at the end of July last year.

NATIONS AT STAKE

Slow global expansion is already showing its signs through soft trade and lower commodity prices. China?s growth is also expected to slide to 8.4% this year. On the other hand, the 2012 forecast for Japan’s growth rate has been cut to 1.9% from 2.6% in June,
World Bank mentioned in its report. ?Developing countries whose deficits have also widened, should engage in contingency planning to have the necessary fiscal leeway if need be.?

Christine Lagarde, managing director of IMF, also issued a warning about global economic slowdown last month. ?If Europe?s debt crisis wasn?t resolved, the world economy could face rising protectionism and isolationism that caused the Great Depression in 1930s,”?she said in a statement.

World Bank President Robert Zoellick had also criticised European leaders last September?for not taking effective actions to resolve region’s sovereign debt crises. He then also warned that global economy has entered a “new danger zone?.

Sources: Bloomberg, thestar.com

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