The World Bank is warning that developing countries around the world should prepare for further downside risks to their economic growth as the eurozone debt crisis stalls consumption in developed economies.
Hans Timmer, Director of Development Prospects at the World Bank, points out the downside risks facing the year 2012.
"The Year of the Dragon will be a very difficult year for the global economy. There are significant downside risks that remain. Those risks are not only coming out of Europe. There are also risks in the oil market, there are risks in other high-income countries, (and) there are risks of course in emerging economies. But the most significant ones are at the moment in Europe."
Many developing countries experienced strong economic growth over the last decade despite the 2008 global financial crisis, because of steadily increasing commodity prices, deepening equity markets and expanding international trade.
But as growth in most rich economies continues to flat-line, uncertainties and vulnerabilities may begin to significantly dampen the performance of many emerging markets which are now the main engine of growth for the world economy.
Justin Yifu Lin, Chief Economist at the World Bank, warns that no one will be spared should an escalation of the crisis occur.
"If the downside risk occurred, because no matter if it's in the developed countries or developing countries, their fiscal space is much smaller than the situation in 2008. So, if the downside risk occurred, the downturn is like to be longer and deeper than the last one."
Lin advises developing economies to review their fiscal space, identify new drivers of growth and conduct stress tests on their domestic banking sectors to prepare for the economic downturn.
The World Bank has lowered its forecast for the eurozone area to a contraction of 0.3 percent compared with a previous estimate of a 1.8-percent gain.
As the EU heads for a recession, the outlook for China, however, is much more optimistic than the global outlook. The World Bank predicts that China's economic growth will slow to 8.4 percent this year, the same as an interim revised projection released in November.
The World Bank report suggests that the fallout experienced by emerging economies can be mitigated by contingency measures. But if the trend persists, fundamental economic restructuring may be necessary to ensure continued growth in developing countries.
For CRI, This is Ding Lulu.
