LOS ANGELES, CA (Catholic Online) - "Europe appears to have entered recession, and growth in several major developing countries [Brazil, India and to a lesser extent Russia, South Africa and Turkey] has slowed," the bank said in its updated forecasts.

The World Bank has predicted that the global economy will expand by 2.5 per cent in 2012 and by 3.1 per cent in 2013. The U.S. economy will also suffer from slower global growth, al though not by as much as developing countries.

"The world is very different than it was six months ago," Andrew Burns, head of the bank's global economics team says. "This is going to be a very difficult year."

The report blames two foremost reasons for the projected economic downturn: Europe's debt crisis has worsened and several developing nations have taken steps to prevent growth from overheating and fueling inflation.

"The downturn in Europe and weaker growth in developing countries raises the risk that the two developments reinforce one another, resulting in an even weaker outcome," the report said.

There has also been failure to resolve high debts and deficits in Japan and the U.S. and slow growth in other high-income countries.

Political tensions in the Middle East and North Africa could disrupt oil supplies and add another blow to global prospects, the World Bank noted.

Markets also remain skittish, in spite of Europe's attempts to curb debt.

"While contained for the moment, the risk of a much broader freezing up of capital markets and a global crisis similar in magnitude to the Lehman crisis remains," the World Bank said. The statement was in reference to the U.S. investment bank that went bankrupt in 2008, helping to intensify the global financial crisis.

Many developing countries now have weaker finances and would not be able to respond to a new crisis as vigorously, the Bank warned.

The World Bank pointed out that since last August, risk aversion to Europe has shot up and "changed the game" for developing countries that have seen their borrowing costs escalate sharply and the flow of capital to them decrease.
 
"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.

© 2012, Catholic Online. Distributed by NEWS CONSORTIUM.