BEIJING, April 7 -- Global economic growth will slow down to 3.1 percent in 2005 as a result of increases in US interest rates, fiscal tightening, and the effects of the 25-percent real effective appreciation of the Euro, the World Bank projected Wedne sday.

   Global economic growth reached 3.8 percent in 2004, the fastest rate in four years, driven by solid US growth and rapid expansion in China, India and Russia, according to the World Bank's 2005 Global Development Finance report.

    The bank is forecasting that developing countries will see a sharp slowdown in their growth to 5.2 percent next year, with growth in the world as a whole slipping back to 3.1 percent.

    In 2004, more money flowed into developing countries than at any time since the financial crises of the late 1990s in Asia and Latin America. Loans and investments increased by $51 billion (¡ê28 billion) to $301.3 billion last year.

    The World Bank warned that developing countries that have amassed large US dollar reserves might face a growing threat of big losses from a sudden decline in the dollar.

    "A sharp depreciation of the dollar could result in large capital losses in local-currency terms for developing countries with substantial dollar reserves," the bank said.

    Foreign reserves held in developing countries rose from $292bn in 2003 to $378bn last year. Asia, and particularly China, accounted for much of this, but 101 of 132 developing countries increased their reserves last year.

    The report's warning was echoed by the International Monetary Fund, the bank's sister organisation, yesterday. Rodrigo Rato, IMF head, said: "A sharp increase in US interest rates would adversely affect the expansion and lead to a significant deterioration in emerging market financing conditions."

    The report came before the World Bank and IMF hold their joint spring meetings in Washington April 16-17. Enditem

(Agencies)