Euromess could still drag down the world
The World Bank is waxing increasingly pessimistic about 2012, predicting that the world’s economy will now grow more slowly than it did last year. But the real worry is what happens if a full-blown crisis erupts in Europe. Ryan Avent parses the consequences:
The authors of the [World Bank] report game out two potential downside scenarios to the baseline forecast. One, a "small contained crisis", projects the impact of a serious credit squeeze on one or two small euro-area economies, resulting in a decline in their output similar to that already experienced in Greece. In that case, the world economy would grow by 1.7 percentage points less than forecast, for a net expansion of just 0.8%. In the other case, the credit squeeze impacts two larger euro economies (like, oh, Spain and Italy). In that event, the World Bank says, the euro-zone economy is likely to contract by nearly 6% in 2012, and the world economy will fall back into recession.
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