World Bank warns developing world to prepare for shocks

18.01.2012 14:45

BBC: 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.

"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.
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.