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Nikkei down 6% and European exchanges off 1% on economic stimulus fears and growth downgrade to 2.2%

Global markets have fallen amid renewed fears over economic growth after the World Bank cut its forecasts for this year, citing a deeper-than-expected recession in Europe and a slowdown in China and India.

It said the global economy was likely to grow by 2.2% this year, a downgrade compared with its January forecast of 2.4% growth. The gloomier outlook came as global markets fell, with the Japanese Nikkei closing down 6.35%, and the FTSE 100, the French CAC, German DAX and Spanish IBEX all down more than 1% in early trading on Thursday.

Against the backdrop of the World Bank report, markets faltered amid fears that central bank stimulus measures – led by the US – might be withdrawn. Michael Hewson, senior market analyst at CMC Markets UK, a financial spread-betting company, said: “European markets have plunged on the open in the wake of the 6.35% decline in the Nikkei overnight as investors continue to worry about the longevity of central bank stimulus measures, while another global growth downgrade from a global organisation, this time the World Bank, has prompted investors to question current stock market valuations.”

The Bank also cut its forecast for growth in 2014 to 3.1% from 3%, but maintained its prediction that global GDP would increase by 3.3% in 2015.

“While there are markers of hope in the financial sector, the slowdown in the real economy is turning out to be unusually protracted,” said Kaushik Basu, senior vice president and chief economist at the World Bank. “This is reflected in the stubbornly high unemployment in industrialised nations, with unemployment in the eurozone actually rising, and in the slowing growth in emerging economies.”

The Bank is now predicting the eurozone economy will shrink by 0.6% this year, compared with an earlier forecast of a 0.1% decline in GDP. The currency bloc’s economy is then expected to grow by 0.9% in 2014 and 1.5% in 2015.

The World Bank highlighted slowing growth in China, as authorities there seek to rebalance the economy, and said India’s annual growth dropped below 6% for the first time in 10 years. It said there was heightened speculation and concern that the US might begin to ease its support of the world’s largest economy by withdrawing quantitative easing, or the use of central bank cash to buy up sovereign debt in the hope that financial institutions will re-invest the windfall in the wider economy.

The Bank added that for austerity programmes, high unemployment, and weak consumer and business confidence would continue to weigh on growth in higher income countries.

It downgraded its forecasts for developing-country GDP to 5.1% this year from an earlier forecast of 5.5%. Growth in 2014 and 2015 is expected to be 5.6% and 5.7% respectively.

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