Washington: Global economic growth has reached a turning point with a slowdown now clearly under way, led by the US, the World Bank said on Wednesday. In its annual Global Economic Prospects report, the Washington-based development lender said global growth was expected to reach 5.1 per cent this year, slow to 4.5 percent in 2007, then rise slightly to 4.6 per cent in 2008.
It said developing countries were in the driving seat, with growth reaching 7 per cent in 2006, twice as fast as developed countries, then falling to 6.4 per cent in 2007 and 6.1 per cent in 2008.
In comparison, developed economies would expand by 3.1 per cent this year, slow to 2.4 per cent in 2007 and strengthen to 2.8 percent in 2008. "The gap between developing countries and high income countries is widening," World Bank economist Hans Timmer said.
"Developing countries are able to accelerate while high income countries are not doing that," he added. He said growth in the world's developing countries would remain strong, boosted by improved policies and favorable financial conditions.
The report said a soft economic landing remains likely, but warned that a cooling U.S. housing market could spark a sharper-than-expected downturn and even a recession, which could have a major impact on developing nations.
It said much slower growth would cause commodity prices to weaken, potentially placing many developing countries that have so far avoided current account problems in difficulty. The World Bank said so far inflationary effects of strong world growth had been largely confined to markets for global goods, such as commodity sectors.
The report forecast that high global oil prices were likely to ease to $56 a barrel in 2007 and fall further to just below $53 in 2008 as supplies rise and demand growth eases. But it warned that if measures to slow growth in key developing nations such as China, Argentina and India fail, inflation in those countries could pick up.
On China, the report said the economic outlook for the world's fastest-growing economy was "still favorable" and growth would likely slow under 10 per cent for the first time in several years to 9.6 percent in 2007 and 8.7 per cent in 2008.
"For the moment, signs of overheating are limited to specific sectors and regions," the report said. "Production capacity continues to expand in line with demand, inflation remains low and the current account is in surplus – all of which augurs well for a soft landing," it added.
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