The multilateral agency had earlier projected that the world economy would expand by 3.6 per cent this year. In its biennial report, 'Global Economic Prospects', the multilateral agency slashed the growth forecast for high income and developing countries this year and in 2013.
"The global economy is now expected to expand 2.5 per cent and 3.1 per cent in 2012 and 2013 (3.4 per cent and 4 per cent when calculated using purchasing power parity weights), versus the 3.6 per cent projected in June (2011) for both years," the report said.
According to the World Bank, the world economy has entered a "dangerous period" and some of the financial turmoil in Europe has spread to developing and other high income countries, which until earlier had been unaffected.
It said this contagion has pushed up borrowing costs in many parts of the world, and pushed down stock markets, while capital flows to developing countries have fallen sharply.
"Europe appears to have entered a recession. At the same time, growth in several major developing countries (Brazil, India and, to a lesser extent, Russia, South Africa and Turkey) is significantly slower than it was earlier in the recovery, mainly reflecting policy tightening initiated in late 2010 and early 2011 in order to combat rising inflationary pressures," the report said.
"As a result, and despite a strengthening of activity in the United States and Japan, global growth and world trade have slowed sharply," the World Bank said.
The multilateral agency also revised its projections for growth in high income and developing countries downward for 2012 and 2013.