Fri, Jan 22, 2010 page10

• Growth may wilt as stimulus fades: report

  • AP
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  The global economy will suffer the fallout from the financial crisis for years to come, the World Bank said yesterday in a report warning that growth may wilt later this year as stimulus spending fades.

  The Washington-based bank forecasts the world economy will grow 2.7 percent this year, and 3.2 percent next year. It contracted 2.2 percent last year.

  “A great deal of uncertainty clouds the outlook for the second half of 2010 and beyond,” the report said.

  Though the “acute phase” of the crisis has passed, chronic weaknesses remain. Much depends on the timing of withdrawal from massive stimulus programs and adjustments to monetary policy, the bank said.

  Mishandling could result in a “double-dip,” with a return to recession next year, it warned.

  In the US, growth is projected at 2.5 percent this year and 2.7 percent next year. European economies will see a slower recovery, with growth forecast at only 1 percent this year.

  China’s economy, whose recovery has led the global rebound, will expand by 9 percent this year and the next, the report said.

  Developing countries will as usual see higher growth rates, at a combined 5.2 percent this year, but will be plagued by shortages of financing and investment that will handicap their progress. Rich countries will grow more slowly, by 1.8 percent this year, as fragile financial markets and anemic private demand crimp job creation and investment, the report says.

  “Unfortunately, we cannot expect an overnight recovery from this deep and painful crisis, because it will take many years for economies and jobs to be rebuilt. The toll on the poor will be very real,” Justin Lin (林毅夫), World Bank chief economist, said in a statement.

  While they will do better than industrial nations, developing economies will have growth rates that fall short of their potential due to the deterioration in conditions for financing and growth, the report said. Unemployment will remain a serious problem.

  Given the reduced appetite among both investors and financial institutions for risk, money will remain tight — in many cases penalizing the countries least responsible for the frenzy of speculative investments that led to the crisis.

  Global investment fell nearly 10 percent last year and will rise only 4.9 percent this year, the report said.

  The poorest countries will need between US$35 billion and US$50 billion in extra funding just to maintain pre-crisis social programs, not taking into account the extra 64 million people pushed into extreme poverty — living on less than US$1 a day, due to the crisis, the report said.

  However, the report notes some positive trends that will cushion the blows from the crisis.

  Oil prices will remain stable, averaging about US$76 a barrel, it says, while other commodity prices will also rise by a modest 3 percent a year this year and next year.

  Short-term food shortages and resulting surges in prices have eased, with long-term gains in productivity likely to help ensure supplies for years to come, the report said. However, some countries, especially in Africa, are increasingly dependent on costly imports because population growth is outpacing gains in agricultural output.

  World trade volumes, which plunged 14.4 percent last year, are expected to rise 4.3 percent this year and 6.2 percent next year — though excess manufacturing capacity will limit gains in jobs and growth.

  To ensure the recovery is sustained, China must rebalance its growth by stimulating domestic demand, rather than shifting toward a renewed reliance on exports, the report said, echoing the consensus among most economists and Beijing’s own planners.
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