The World Bank released its 2012 Global Economic Prospects report last month, saying that “the world economy has entered a very difficult phase characterized by significant downside risks and fragility.”

“The financial turmoil generated by the intensification of the fiscal crisis in Europe has spread to both developing and high-income countries, and is generating significant headwinds,” according to the report. “Capital flows to developing countries have declined by almost half as compared with last year, 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 partly in reaction to domestic policy tightening. As a result, and despite relatively strong activity in the United States and Japan,
global growth and world trade have slowed sharply.”

The World Bank says in the report that the global economy is now expected to expand 2.5 and 3.1 per cent in 2012 and 2013 (3.4 and 4.0 per cent when calculated using purchasing power parity weights), versus the 3.6 per cent projected in June for both years.

High-income country growth is now expected to come in at 1.4 per cent in 2012 (-0.3 per cent for Euro Area countries, and 2.1 per cent for the remainder) and 2.0 per cent in 2013, versus June forecasts of 2.7 and 2.6 per cent for 2012 and 2013 respectively.

Developing country growth has been revised down to 5.4 and 6.0 per cent versus 6.2 and 6.3
per cent in the June projections. Reflecting the growth slowdown, world trade, which expanded by an estimated 6.6 per cent in 2011, will grow only 4.7 per cent in 2012, before strengthening to 6.8 per cent in 2013.

Download a PDF of the World Bank’s Global Economic Prospects 2012 report here. (warning: larger file size 10.9MB)