Recent forecasts from the World Bank have indicated that emerging economies should brace themselves for turbulent times over the next year. In fact should the sovereign debt crisis worsen there is the prospect of a downturn on the scale of that in 2008/09. Developed nations would also find it hard to endure another recession mainly because “it has used up just about all its ammunition” – interest rates can’t go much lower to stimulate growth and governments have no money to inject into the economy.
The World bank forecasts that the eurozone will contract whilst other industrialised countries will only grow by approximately 2%. This has worrying implications for developing countries as world trade will inevitably start to contract meaning less demand. Furthermore, it could be that developing nations find it hard to decouple from the recessionary threat in Europe and this could leave the world economy in a catch-22 situation. Basically the World Bank is saying to developing counties – “prepare for the worst”.