The international banking crisis that erupted in September after more than a year of less acute financial turmoil has substantially reinforced the cyclical downturn that was already under way, the bank said in a report devoted to assessing economic prospects for 2009.
"Following the insolvency of a large number of banks and financial institutions in the United States, Europe and the developing world, financial conditions have become much tighter, capital flows to developing countries have dried up and huge amounts of market capitalization have evaporated," the bank said.
The bank predicted world economic growth will be 2.5 percent in 2008 and 0.9 percent in 2009. It said developing countries will likely grow 4.5 percent next year, down from 7.9 percent in 2007, while the economies of high income countries will shrink.
Even if the strong measures governments took to restore confidence in the international banking system work and credit begins to thaw, a number of developing countries are likely to face substantial strains, possibly including bank failures and currency crises, the bank said.