WORLD BANK: Brace Yourself For Economic Slowdown

balloon popping

The World Bank downgraded its outlook for global growth today, estimating that the global economy will grow by 2.5% and 3.1% in 2012 and 2013, respectively.

That’s down from estimates in June that the economy would grow by 3.6% in both years.

World Bank economists also predicted that growth in the volume of global trade will slow from an estimated 6.6% this year to 4.7% in 2012, before recovering to 6.8% in 2013. In 2012, growth for developing countries will total 5.4% versus earlier estimates of 6.2%, and developed economies will see growth of 1.4% in comparison to June predictions of 2.7%.

But perhaps the most interesting takeaway from that report is an assessment of the transforming macro environment. While admitting that a global slowdown will pose challenges for emerging markets, it also appears to suggest that we’re witnessing a fundamental shift in focus away from developed markets.

Whatever the actual outcomes for the world economy in 2012 and 2013 several factors are clear. First, growth in high-income countries is going to be weak as they struggle to repair damaged financial sectors and badly stretched fiscal balance sheets. Developing countries will have to search increasingly for growth within the developing world, a transition that has already begun but is likely to bring with it challenges of its own.

But this won’t come without some negative short-term consequences, particularly if threats posed by the eurozone debt crisis materialise.

Should conditions in high-income countries deteriorate and a second global crisis materialises, developing countries will find themselves operating in a much weaker global economy, with much less abundant capital, less vibrant trade opportunities and weaker financial support for both private and public activity. Under these conditions prospects and growth rates that seemed relatively easy to achieve during the first decade of this millennium may become much more difficult to attain in the second, and vulnerabilities that remained hidden during the boom period may become visible and require policy action.

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