The World Bank has warned developing countries they need to be prepared for shocks as global economic growth slows.
The organisation has slashed its growth forecasts, and is now predicting a 0.3% contraction for the eurozone in 2012.
“Developing countries need to evaluate their vulnerabilities and prepare for further shocks, while there is still time,” said World Bank chief economist Justin Yifu Lin.
“Escalation of the crisis would spare no-one,” the report’s author warned.
Referring to the eurozone crisis and its potential to impact growth in rich and poor countries, Andrew Burns said:
“Developed and developing-country growth rates could fall by as much or more than in 2008/09.
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Developing world needs to prepare for global economic slowdown says World Bank
“The importance of contingency planning cannot be stressed enough.”
The World Bank is predicting growth of 5.4% for developing countries in 2012 and 1.4% for high income countries, down from its forecasts of 6.2% and 2.7% respectively in June.
The World Bank’s Global Economics Prospects report says that slower growth is already visible in global trade and commodity prices.
It said that declining commodity prices were better news for the developing world, although food security for the poorest countries was still a major concern.
Food prices are down about 14% from their peak in February 2011.
The World Bank has a warning for the developing world: prepare for the worst.
In its Global Economic Prospects, the bank does forecast continued growth, but warns there is a risk of a worse outcome: of another crisis as bad as what followed Lehman in 2008.
So could the developing countries cope? After all, they weathered the previous global recession relatively well. The Bank’s view is that they, for the most part, are in better in shape than the rich nations.
Some have scope to boost government spending and should identify now what would most help development and the poor. But others don’t have that room for manoeuvre and will need to make cuts if there is a prolonged downturn.
Andrew Burns, manager of global macroeconomics at the World Bank, told the BBC there was a danger that the downturn could be longer lasting than the one which followed the collapse of Lehman Brothers in 2008.
“This time, going in, [developing countries] will be in much better condition than high income countries, but that said, we are concerned,” he said.
“They are going to be operating in a situation where the high income countries aren’t going to be able to offer the same type of counter fiscal policy and the same type of support to the financial system as they did in 2008/9.”
The World Bank warns that the sovereign debt crisis in the eurozone and the slow growth in developing countries could “reinforce one another” causing even slower growth than predicted.