The World Bank Wednesday urged developing countries to prepare for the "real risk" that an escalation in the eurozone debt crisis could tip the world into a slump on par with the 2008 global downturn.
In its biannual Global Economic Prospects report, the Washington-based institution predicted world economic growth of 2.5 percent in 2012 and 3.1 percent in 2013, well below the 3.6 percent growth it projected in June for both years.
High-income countries were expected to grow by 1.4 percent this year, weighed down by a 0.3 percent contraction in the 17-nation eurozone.
It cut its forecast for growth in developing economies to 5.4 percent for 2012 from its previous forecast of 6.2 percent, saying growth in Brazil and India and to a lesser extent, Russia, South Africa and Turkey, had already slowed.
"The risks of a global freezing-up of capital markets, as well as a global crisis similar to what happened in September 2008, are real," the bank's chief economist Lin Yifu said in Beijing.
"Many governments are in a weaker position than they were to respond to the 2008 global crisis because their debts and budget deficits are bigger, and developing countries need to evaluate their vulnerabilities and prepare for further shocks," Lin said, adding that the downturn is likely to be longer and deeper this time.
The World Bank said if the eurozone debt crisis escalates, global growth would drop by more than 4 percentage points.
It said China's GDP growth is expected to dip to 8.4 percent in 2012, compared with a 9.2 percent expansion in 2011, and called on developing countries to start making contingency plans to identify spending priorities and to shore up safety net programs.
Lin said the worldwide slowdown would affect China's export-driven economy, given that growth projection for global trade was slashed to only 4.7 percent for this year, compared with an estimated 6.6 percent in 2011.
"But the Chinese government is one of the least indebted in the world. If necessary, it still has relatively large room for maneuver to stimulate the economy," Lin said.
Liu Shengjun, a deputy director of the Lujiazui International Finance Research Center at the China Europe International Business School, told the Global Times that the eurozone debt crisis would be the biggest external challenge for the Chinese economy in the coming months.
Liu also predicted that more trade frictions were likely to emerge.
"Competing in the international market with low costs, Chinese enterprises are expected to become major targets of Western anti-dumping acts," Liu said, adding that the US will be the focus of trade disputes with China.
Hans Timmer, director of the World Bank's Development Prospects Group, said uncertainty could reduce demand for investment in emerging markets.
"That is what we are most concerned about, because ultimately, it is currently investment in the developing world that drives global growth," he said.
China reported Wednesday that foreign direct investment fell for a second straight month in December, down 12.7 percent year-on-year to $12.2 billion, underscoring the World Bank's warning.
"The international community should not expect China to roll out another 4-trillion-yuan ($633.81 billion) stimulus plan, since the stimulus left a legacy of high inflation, property bubbles and mounting bad debts for local governments," said Li Xiangyang, a deputy director with the Institute of World Economics & Politics under the Chinese Academy of Social Sciences.
"Maintaining an annual growth above 8 percent and investing its foreign reserves properly are the things China can do to lead the world economy out of the woods," Li told the Global Times.
Noting that its vast foreign reserves could reassure investor confidence, Li said China could increase its support to the International Monetary Fund (IMF) so as to indirectly provide help to the eurozone.
"If China and Europe could reach an agreement on economic prospects as well as a good return on Chinese investment, there is still a possibility of Beijing buying bonds directly from Europe," he said.
The World Bank said that although high-income countries have the prime responsibility for preventing a crisis, "developing countries have an obligation to support that process both through the G20 and other international fora."
"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 bank said.
It listed several additional risks to the outlook, including the possibility of conflicts in the Middle East and North Africa, which could disrupt oil supplies.
The World Bank forecast is lower than ones from the IMF, which has said it expects to cut its forecasts that had predicted world growth of 4 percent in 2012.
