The World Bank says the economies of developing countries are expected to grow by just 1.2% this year, compared with 5.9% in 2008 and 8.1% in 2007.
If China and India are excluded, gross domestic product in developing countries is projected to fall by 1.6%, the BBC reports.
The bank's annual Global Development Finance report warns of possible joblessness and poverty in developing nations.
It also forecast the global economy as a whole would shrink by 2.9% this year, against an earlier prediction of 3%.
The report says that economic policies have to "focus rapidly on financial sector reform and support for the poorest countries".
In addition, the bank warns that the flow of money into the developing world is likely to halve this year.
World Bank figures show developing countries' net private capital inflows fell from $US1.2 trillion in 2008 to $US707 billion last year.
According to the bank the inflow into poorest countries this year may be just $US363 billion.
The bank urged rich countries to boost the flow of credit to developing nations to help speed up economic recovery.