The global economy is expected to slow to a modest 3.3% growth pace this year, but the pace could worsen if the US slips into recession, the World Bank has said.
Despite financial turmoil unleashed by a meltdown in the US mortgage market, global growth slowed in 2007 to 3.6% from 3.9% rate in 2006, the Bank said in a report titled 'Global Economic Prospects 2008.'
Most of the 2007 slowdown was due to weaker growth in high-income countries. Developing countries cushioned the blow with robust 7.4% growth, virtually unchanged from 2006.
The World Bank said the slowdown in the US, the world's largest economy, is being partly offset by the resilience of developing countries, which have powered through four consecutive years of record expansion.
After modest growth of 3.3% in 2008, global output should expand by 3.6% in 2009 as the US economy rebounds, the report said.
US economic growth is expected to have slowed to 2.2% in 2007, from 2.9%. The Bank forecast a 1.9% expansion in 2008, then a rise to 2.3% in 2009.
The authors of the 2008 report highlighted the current 'period of increased uncertainty' and cited several 'serious downside risks' to a projected scenario of a soft landing for the global economy.
'External demand for the products of developing countries could weaken much more sharply and commodity prices could decline if the faltering US housing market or further financial turmoil were to push the United States into a recession,' they wrote.
The development lender cited other potential risk factors such as overstimulation of the economy by monetary authorities in response to the climate of uncertainty and further steep declines in the dollar.
For the 15-nation euro zone, the World Bank predicted that growth would decline more than a half percentage point to 2.1% in 2008, before rebounding to 2.4% in 2009. And Japan would stutter to a 1.8% pace this year, bouncing up to 2.1% in 2009.
The report highlighted an acceleration of industrial production in the developing world in the first half of 2007 that buoyed economic growth. China, India and Russia were key in raising output.
The Bank estimated GDP in East Asia and the Pacific grew about 10% in 2007, with China up by over 11%. Growth for the region was expected to ease to 9.7% in 2008 and to 9.6% by 2009.
Among other regional forecasts for the developing world, GDP in Europe and Central Asia expanded by 6.7% in 2007 and is expected to slow to 6.1% in 2008. Output in the Middle East and North Africa eased slightly in 2007 to 4.9% and is forecast, with the help of high oil prices, to surge 5.4% in 2008.
GDP growth in Sub-Saharan Africa grew 6.1% in 2007, and is seen rising by 6.4% in 2008.
