UPDATE 1-World Bank-Double-dip recession can’t be ruled out

* Double-dip recession cannot be ruled out

* No sign that Europe debt crisis has hit developing world

* Aid flows to poor could fall by 20-25 percent
(Recasts; adds double-dip recession warning, quotes)

By Lesley Wroughton

WASHINGTON, June 9 (BestGrowthStock) – The World Bank on Wednesday
said a double-dip recession could not be ruled out in some
countries if investors lose faith in efforts in Europe and
elsewhere to tackle rising debt levels.

The World Bank’s Global Economic Prospects 2010 report said
slower growth in developed economies would deprive developing
countries of healthy markets for their goods and would cut into
investment.

For the moment, worries that Greece’s fiscal woes could
spread to other highly-indebted countries, such as Spain and
Portugal, has not affected growth in developing countries, the
World Bank said.

“If markets lose confidence in the credibility of efforts
to put policy on a sustainable path, global growth could be
significantly impaired and a double-dip recession could not be
excluded,” the report said.

U.S. Federal Reserve Chairman Ben Bernanke, in testimony to
lawmakers on Wednesday, said a double-dip recession in the
United States could never entirely be ruled out. The Fed has
forecast U.S. growth this year of 3 percent to 4 percent.

The World Bank called for “significant” fiscal
consolidation in advanced economies, adding that simulations
conducted by the bank showed that the quicker it happened, the
better it would be for developing economies.

The bank also said industrialized countries should seize
the opportunities offered by stronger growth in developing
countries to boost economic activity.

Still, the report warned that a prolonged period of rising
sovereign debt could make credit more expensive and curtail
investment and growth in emerging markets.

It said current data suggests that through the end of March
the global economic recovery remained robust in most countries,
with the exception of Western European nations where it had
stagnated.

Euro zone countries have committed to austerity measures to
bring their public finances under control, and unveiled a $1
trillion plan to stop the crisis from spreading with the help
of the International Monetary Fund.

“The acute phase of the crisis is over and we’re now going
into a longer term challenge of returning fiscal policy in
high-income countries back to a sustainable level,” said World
Bank economist Andrew Burns.

“How successful we are in doing that is going to have an
important impact in developing countries and in developed
countries,” he added.

The World Bank forecast that developing economies would
expand at between 5.7 percent and 6.2 percent each year from
2010 to 2012 — more than twice the growth rate of advanced
economies. This is substantially higher than last year’s 1.7
percent.

But should the crisis in Europe worsen and spread, the
World Bank said the pace of growth in developing countries
would slow to 6.1 percent this year and 5.7 percent in 2011,

Advanced economies are projected to expand by between 2.1
and 2.3 percent in 2010 — not enough to undo the 3.3 percent
contraction they experienced last year — followed by growth of
between 1.9 and 2.4 percent in 2011.

Meanwhile, global growth is likely to expand by 3.3 percent
in 2010 and 2011, rising somewhat after that to 3.5 percent in
2010, the bank said.

The World Bank said it was concerned that aid flows to the
world’s poorest countries would fall sharply amid
belt-tightening in donor nations. Burns said based on previous
crises in developed countries aid flows are likely to fall by
between 20 to 25 percent.

“That would clearly be a very serious situation for low
income countries,” Burns said. “It is not our expectation that
we will see that sharp a decline, but it is an indicator of the
risk that is there.”

Aid can represent as much as 20 percent of government
spending in some developing countries, he noted.

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UPDATE 1-World Bank-Double-dip recession can’t be ruled out