In grim economic news, the latest World Bank report released Wednesday slashed its growth forecast for the year to 5.4 percent for developing countries and 1.4 percent for high-income countries, from 6.2 percent and 2.7 percent respectively.
The Bank’s Global Economic Prospects 2012 report showed developing countries should prepare for further downside risks, as the Euro Area debt problems and weakening growth in large emerging economies dampen global growth prospects.
On balance, the World Bank said global economic conditions were “fragile and there remains great uncertainty as to how markets will evolve over the medium term.”
In addition, many developing countries have weaker finances and would not be able to respond to a new crisis as vigorously.
Global growth is now projected at 2.5 and 3.1 percent for 2012 and 2013, respectively.
Against that backdrop, it said developing countries were even more vulnerable than they were in 2008 because they could find themselves facing reduced capital flows and softer trade.
According to the report, slower growth is already visible in weakening global trade and commodity prices.
Global exports of goods and services expanded an estimated 6.6 percent in 2011 (down from 12.4 percent in 2010), and are projected to rise by only 4.7 percent in 2012.
Meanwhile, global prices of energy, metals and minerals, and agricultural products are down 10, 25 and 19 percent respectively since peaks in early 2011.
A serious crisis would manifest itself in not just reduced trade flows, but also reversal of capital flows, making it hard for countries, especially in Eastern Europe and Latin America, who have debt coming due.
“Developing countries need to evaluate their vulnerabilities and prepare for further shocks, while there is still time,” the World Bank said.
“No country and no region will escape the consequences of a serious downturn,” the World Bank said, adding that now was the time for developing countries to plan how to soften the impact of a potential deep crisis.