Risk of Recession, Says World Bank As Recovery Falters

There is a "significant risk" the global economy will slide into recession in the coming months, jeopardising attempts to relieve poverty in the developing world, the World Bank warned yesterday.

Downgrading the economic forecasts it made just six months ago, the Bank said volatility in the financial markets and the continued weakness of business investment had held back growth, hitting poor countries especially hard.

"The recovery has been much more hesitant than we expected," said chief economist Nick Stern. In its last set of forecasts, the World Bank pencilled in global economic growth of 3.6% for next year, but it is now expecting a much less healthy 2.5%.

Developing economies are now projected to expand by 3.9%, against a previous estimate of 4.9%. "Growth in 2003 seems certain to be weaker for almost all developing regions than we anticipated as recently as six months ago," the report says, highlighting sharp cuts in inward investment as richer countries shift their assets into havens.

"We're looking at the most sustained fall in foreign direct investment in developing countries since the global recession of 1981-1983," said Richard Newfarmer, the report's lead author. Stressing that the global economy is not yet out of the woods, the World Bank says it is concerned that a renewed downturn could send the fragile recovery into reverse.

"Vulnerability to adverse shocks has increased, and even the potential for a 'double-dip' recession scenario in the industrial countries cannot - at this juncture - be ruled out," the report says.

In this tricky financial environment, the Bank says it is crucial to maintain progress in dismantling existing barriers to international trade. "It would be unfortunate if a myopic focus on short-term issues permitted protectionist forces to stifle progress in removing trade barriers and other impediments to investment and poverty reduction in developing countries," said Uri Dadush of the World Bank.