The World Bank on Tuesday urged developing nations to prepare for a long period of volatility in the global economy amid a resurgence of tensions in high-income Europe.
"Increased uncertainty will add to pre-existing headwinds from budget cutting, banking-sector deleveraging and developing country capacity constraints," the lender said in the newly-released Global Economic Prospects.
The World Bank projects that developing country growth will ease to a relatively weak 5.3 percent in 2012, slightly below the 5.4 percent growth predicted in January. Growth will likely strengthen somewhat to 5.9 percent in 2013 and 6 percent in 2014.
If the situation in Europe deteriorates sharply, no developing region would be spared, it cautioned. Developing Europe and Central Asia is especially vulnerable because of its close trade and financial ties with high-income Europe.
"Global capital market and investor sentiment are likely to remain volatile over the medium term - making economic policy setting difficult," World Bank Director of Development Prospects Hans Timmer said.
"In this environment, developing countries should focus on productivity-enhancing reforms and infrastructure investment instead of reacting to day-to-day changes in the international environment," Timmer added.
High-income countries are forecast to grow 1.4 percent in 2012 and 1.9 percent in 2013. The gross domestic product in the euro area is seen declining 0.3 percent in 2012. Overall, global GDP is projected to rise 2.5 percent this year and 3 percent next year. The forecasts are almost in line with the January projections.
China's GDP is expected to accelerate from 8.2 percent in 2012 to 8.4 percent by 2014, while growth in India will be weighed down by monetary policy, stalled reforms, electricity shortages, fiscal and inflation concerns and weak investment.
According to World Bank estimates, India will see a growth of 6.9 percent in the fiscal year 2012-13 and 7.2 percent in 2013-14.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.