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World Bank report: Modest global growth in 2008, US runs recession risk news
11 January 2008

Washington: Global economy may maintain a modest 3.3 per cent growth pace this year, provided the United States does not slip into recession, the World Bank said earlier this week in a report titled "Global Economic Prospects 2008."

According to the report, global growth has slowed to 3.6 per cent in 2007 from 3.9 per cent in 2006.

The report highlights the fact that the fall in the growth rate has not been very steep, given the magnitude of the global financial turmoil sparked of by the meltdown in the US mortgage market in 2007.

The report also says that most of the slowdown in 2007 was caused by weaker growth in high-income countries.

US economic growth, it says, may have slowed to 2.2 per cent in 2007, from 2.9 per cent. For the US, the bank forecasts an even slower 1.9 per cent expansion in 2008, and only a gradual increase to 2.3 per cent in 2009.

As for the global economy, after posting a modest growth of 3.3 per cent in 2008, output should expand by 3.6 per cent in 2009. This growth would come on the back of a rebound in the US economy, the report said.

The report also points out that the fall in global growth in 2007 was cushioned by developing countries, which posted a robust 7.4 per cent growth, almost at the same level as 2006.

The developing countries have now posted four consecutive years of record expansion.

Increased uncertainty
The bank's 2008 report highlights the current "period of increased uncertainty" and cites several "serious downside risks" which may prevent 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," says the report.

The report also highlights risks from other factors such as over-stimulation of the economy by monetary authorities in response to the climate of uncertainty and further declines in the value of the dollar.

"Overall, we expect developing-country growth to moderate only somewhat over the next two years," Uri Dadush, director of the World Bank's Development Prospects Group and International Trade Department, said in an accompanying statement.

"However, a much sharper United States slowdown is a real risk that could weaken medium-term prospects in developing countries," he said.

It forecasts a moderate 2.2 per cent growth for high-income countries for 2008.

The report says that the 15-nation Euro zone is likely to suffer in this environment, with growth expected to decline more than a half percentage point to 2.1 per cent in 2008, before rebounding to 2.4 per cent in 2009.

The prospects for Japan were none to rosy, with a projected growth pace of 1.8 per cent for the year. It expects the pace to pick up to 2.1 per cent in 2009.

For developing countries, real gross domestic product (GDP) growth is expected to dip to 7.1 per cent in 2008,

According to the report, an acceleration of industrial production in the developing world in the first half of 2007 buoyed economic growth with China, India and Russia being the key players in raising output.

The Bank estimated GDP in East Asia and the Pacific grew about 10 per cent in 2007, and for China by more than 11 per cent.

It also said that except for China, direct exposures of financial institutions in the region to mortgage-based securities related to the US housing slump are limited.

Growth for the region was expected to dip somewhat to 9.7 per cent in 2008 and to 9.6 per cent by 2009.

GDP in Europe and Central Asia expanded by 6.7 per cent in 2007 and was expected to slow to 6.1 per cent in 2008. GDP growth in Sub-Saharan Africa grew 6.1 per cent in 2007, and is seen rising by 6.4 per cent in 2008.

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World Bank report: Modest global growth in 2008, US runs recession risk