Friday 22 June 2018

Global economy prospects 'unusually uncertain'

London, June 22, 2009

The World Bank warned on Monday prospects for the global economy remained 'unusually uncertain' despite recent signs of improvement in parts of the world and cut its 2009 growth forecasts for most economies.

The World Bank, which has recently cut its forecast for the global economy to a contraction of 2.9 percent from a projection for a 1.7 percent decline set in March, released details on individual economies for the first time on Monday.

It also called on the governments around the world for 'vigilance' in drawing up exit strategy to reverse the recently expansionary monetary and fiscal policy once the world economy takes off for recovery.

Governments should stick to spending programmes worth hundreds of billions of dollars to reignite growth because their economies are still weak in spite of signs that the worst of the crisis may be past, a World Bank official said.

World Bank Chief Economist Justin Lin said in an interview he was concerned about rising borrowing costs due to growing sovereign debt offerings and a weak external financing conditions for the emerging economies of Europe and Central Asia.

'If on the financial side you have a recovery and on the real side you also show improvement, then we will be confident that we are going to have a sustained recovery,' Lin told Reuters on the sidelines of an international conference.

'It is very important to let the stimulus continue until the capacity utilisation returns to a normal level. Otherwise, there is always a danger that unemployment will rise and growth slow down.'

Because global growth will only return to its full potential by 2011, the gap between actual and potential output, unemployment, and disinflationary pressures continue to build, said the World Bank in its Global Development Finance 2009 report.

The report compares with a more upbeat assessment by the International Monetary Fund, which said last week that the decline in global output has moderated and that it may raise its 2010 growth forecast for the world economy.

The World Bank expects the United States and Japan - the world's top economies - to contract by 3.0 percent and 6.8 percent this year, respectively, worse than the 2.4 percent and 5.3 percent declines predicted three months ago.

The World Bank recently cut its forecast for the world economy to a contraction of 2.9 percent from 1.7 percent but has not released individual country forecasts.

Lin said the soaring amount of sovereign debt offerings in the United States and elsewhere to fund stimulus packages would inevitably raise borrowing costs and could hamper a recovery.

'If the bonds increase in quantity, certainly there will be pressure on the price and interest rates are likely to increase,' he said. 'That will increase the cost of capital, increase the cost of management. That why we say there's some uncertainty.'

He said some of the emerging markets in Europe and Central Asian could face financial crises should the global recovery be delayed and financing troubles worsen.

'There certainly is a concern that they may have a second round of crisis because of the financing gap and also if the global economy doesn't recover, and their exports and remittances can't recover. He identify any countries that may face such a scenario.

The World Bank warned in its report that if financial troubles persist in these economies, some may be forced to devalue their currencies to restore internal and external balances.

Lin declined to be drawn on whether a doubling in oil prices in recent months would prompt the World Bank to revise its forecast for a 10 percent rise in the crude oil prices throughout next year.-Reuters

Tags: World Economy | Stimulus |


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