The World Bank warned Tuesday that the global economy was expected to slow to a modest pace this year but the soft landing was challenged by several "serious downside risks."
The 3.3-percent modest growth this year, down from 3.6 percent in 2007 and 3.9 in 2006, was mainly caused by the slowdown in high-income countries, said the report titled "Global Economic Prospects 2008."
"Notwithstanding the financial turmoil provoked by a reassessment of risks in the U.S. mortgage market, and despite large losses in some financial markets, exposure to asset backed securities appears to be broadly based," said the report, adding losses so far have been anageable, although credit conditions have tightened.
Growth in developing economies was a robust 7.4 percent in 2007, roadly unchanged from 2006. "This strong performance in the developing ountries has offset somewhat the slowdown in U.S. domestic demand that started with the unwinding of the housing bubble early in 2006," said the report.
During 2007, developing countries accounted for more than half the growth in world imports, contributing -- along with thedepreciation of the dollar -- to strong net exports for the UnitedStates and furthering the reduction in global imbalances.
Among the major advanced economies, the projection for U.S.growth in 2008 as a whole was at 1.9 percent. The World Bank alsolowered the U.S. economy's growth rate in 2007 to 2.2 percent from2.9 percent in 2006.
Euro area growth was expected to slow to about 2.7 percent in2007 and 2.1 percent in 2008, while growth in Japan was expectedto ease from 2.0 percent in 2007 to 1.8 percent in 2008.
China's growth would continue its fast expansion in 2007 and2008. It was expected to increase 11.3 percent in 2007 and 10.8percent in 2008. India was expected to expand 9.0 percent in 2007and 8.4 percent this year.
The GDP growth in Sub-Saharan Africa grew 6.1 percent in 2007,and would rise by 6.4 percent in 2008.
But the report also warned that "several serious downside riskscast a shadow over this soft landing for the global economy."
External demand for the products of developing countries couldweaken much more sharply and commodity prices could decline if thefaltering U.S. housing market or further financial turmoil were topush the United States into a recession, according to the report.
Alternatively, monetary authorities might overreact to thecurrent climate of uncertainty and overstimulate the economy.
"This would be particularly dangerous for developing countriesif the bulk of the resulting liquidity were to move into rapidlygrowing developing regions, provoking the same kind ofover-investment conditions that arose in the U.S. housing market,"said the report.
Further sharp declines in the U.S. dollar were also a potentialthreat, despite the boost provided to U.S. exports.
"A recession in the U.S. or an excessive easing of U.S.monetary policy could contribute to further sharp declines in thedollar," said the report. "A weaker dollar would benefitdeveloping countries with dollar debt, but impose losses on thosethat hold dollar-denominated assets."
"The main impact of a precipitous decline of the dollar wouldlikely derive from the increased uncertainty and financial-marketvolatility it would provoke, which would increase trading costs,and spreads on developing country debt -- resulting in weakerexport and investment growth throughout the global economy," the report added.
Source:Xinhua
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