World Bank Cuts Growth Outlook

The global economy, which expanded an estimated 2.3% in 2012, will grow 2.4% this year, the World Bank predicts.

But that pace is sharply lower than the 3% rate forecast earlier by the group. The bank says it reduced its outlook because of an unexpectedly slow recovery in developing countries.

The Washington, D.C.-based bank cautions that the long-running U.S. budget fight, which is undermining economic confidence, is the biggest threat to the world's growth this year.

The organization expects 1.9% growth in America's gross domestic product this year compared with an estimated 1.3% last year. That outlook assumes significant progress toward a medium-term budget solution and increase in the federal debt ceiling.

If continuing "fiscal paralysis" triggers huge automatic spending cuts in March, the U.S. economy could contract 0.4%, according to the bank. It says that would send Europe deeper into recession and reduce global growth by 1.4 percentage point.

A renewal of Europe's debt crisis would cut the world's GDP by 1.3 points, the World Bank forecasts. It projects that developing countries, whose economies expanded by an estimated 5.1% in 2012, will grow 5.5% this year. Those countries accounted for more than half of last year's global growth.