Global re­ces­sion to worsen, World Bank says

The Washington Times Weekly - - International Perspective - BY DAVID M. DICK­SON

The global econ­omy will shrink by 2.9 per­cent this year, the World Bank pre­dicted June 22. It would be the first global con­trac­tion in the post-World War II pe­riod, the bank warned in its an­nual Global De­vel­op­ment Fi­nance re­port.

World trade will plum­met by nearly 10 per­cent this year, the sharpest drop in post­war his­tory, the bank said.

The world­wide re­ces­sion will ex­act a much big­ger toll in lost out­put than the bank ex­pected as re­cently as March, when it pro­jected the world econ­omy would con­tract by 1.7 per­cent this year.

The U.S. econ­omy is ex­pected to de­cline by 3 per­cent in 2009, a steeper set­back than the 2.4 per­cent con­trac­tion the bank fore­cast in March.

White House spokesman Robert Gibbs said Pres­i­dent Obama ex­pects the U.S. un­em­ploy­ment rate, 9.4 per­cent in May, will reach 10 per­cent within the next few months. Mean­while, U.S. in­ter­est rates have been ris­ing lately as the 10-year Trea­sury note, which plunged to nearly 2 per­cent in De­cem­ber, briefly touched 4 per­cent ear­lier this month and set­tled at 3.7 per­cent on June 22.

The broad-based Stan­dard & Poor’s 500 In­dex, which lost 2.6 per­cent two weeks ago, shed an­other 3.1 per­cent on June 22. An­a­lysts at­trib­uted part of the June 22 stock mar­ket re­treat to the World Bank’s more pes­simistic re­port for 2009.

The even­tual re­cov­ery, which most economists ex­pect to be­gin later this year, will be mod­est, ac­cord­ing to the World Bank’s fore­cast. The global econ­omy is ex­pected to ex­pand by just 2 per­cent next year and 3.2 per­cent in 2011, the bank said. In con­trast, dur­ing the 2004-2007 pe­riod, the world econ­omy roared ahead at an an­nual rate of about 5 per­cent.

U.S. growth next year will be a slug­gish 1.8 per­cent, the bank said.

Af­ter ex­pand­ing by 8.1 per­cent in 2007 and 5.9 per­cent in 2008, de­vel­op­ing coun­tries are ex­pected to grow by just 1.2 per­cent this year and a rel­a­tively slug­gish 4.4 per­cent next year. When China and In­dia are ex­cluded, the gross do­mes­tic prod­uct of the re­main­ing de­vel­op­ing coun­tries is ex­pected to fall by 1.6 per­cent this year, “a real set­back for poverty re­duc­tion,” the re­port said.

De­vel­op­ing coun­tries, which rely on the World Bank and its sis­ter or­ga­ni­za­tion, the In­ter­na­tional Mon­e­tary Fund, for emer­gency fi­nanc­ing dur­ing eco­nomic crises, have been hit hard be­cause net pri­vate cap­i­tal in­flows plunged from $1.2 tril­lion in 2007 to $700 bil­lion last year. The World Bank ex­pects in­ter­na­tional cap­i­tal flows to de­vel­op­ing na­tions to tank again this year, fall­ing by nearly 50 per­cent to $363 bil­lion, which is just 30 per­cent of the 2007 level.

“Al­ready un­der se­vere strain, low-in­come coun­tries face in- creas­ingly grave eco­nomic prospects if the dra­matic de­te­ri­o­ra­tion in their cap­i­tal in­flows from ex­ports, re­mit­tances and for­eign di­rect in­vest­ment is not re­versed in 2010,” the World Bank warned in its re­port.

The World Bank is much more pes­simistic this year than the IMF, whose April fore­cast pro­jected a 1.3 per­cent de­cline in global GDP in 2009. How­ever, both in­sti­tu­tions ex­pect a very mod­est global ex­pan­sion of about 2 per­cent next year.

Pri­vate fore­cast­ers are also pre­dict­ing a tepid re­cov­ery.

“The global up­turn that we are ex­pect­ing will prob­a­bly be slug­gish, at least ini­tially,” said Jay H. Bryson, global econ­o­mist for Wa­chovia Eco­nomics Group. “The even­tual U.S. re­cov­ery prob­a­bly will be held back by slow growth in con­sumer spending, as in­di­vid­u­als at­tempt to de-lever and re­pair their bat­tered bal­ance sheets.”

Wa­chovia ex­pects the U.S. econ­omy to shrink by 2.7 per­cent this year and grow by 2.1 per­cent next year.

Ris­ing un­em­ploy­ment and fall­ing home val­ues will con­tinue to gen­er­ate head winds against con­sump­tion next year in the United States, where, the World Bank ob­served, house­hold as­sets plunged by a stag­ger­ing $11.3 tril­lion dur­ing 2008.

“The need to re­struc­ture the bank­ing sys­tem, com­bined with emerg­ing lim­its to ex­pan­sion­ary poli­cies in high-in­come coun­tries, will pre­vent a global re­bound from gain­ing trac­tion,” said Justin Lin, World Bank chief econ­o­mist.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.