FYI | Jun 12 2009
By Rudi Filapek-Vandyck
In spite of the spike in overall investor optimism, global economic growth is set to contract by more not less than previously expected, reports the World Bank, adding poor countries will continue to be hit hard by “multiple waves of economic stress”.
According to the Bank’s statement, even with the stabilisation of financial markets in many developed economies, unemployment and under-utilization of capacity continue to rise, and this continues putting downward pressure on the global economy.
According to the latest Bank estimates, the global economy will decline this year by close to 3%. This marks a significant revision from its previous estimate of a contraction of 1.7%. Adds the Bank: most developing country economies will contract this year and face increasingly bleak prospects unless the slump in their exports, remittances, and foreign direct investment is reversed by the end of 2010.
Economic growth is expected to “revive” in 2010, but the pace of recovery remains uncertain, says the Bank.
In particular, the crisis implications for poor countries are stark, and driving expanded use of World Bank resources, with the Bank reporting requests for assistance are up at the International Development Association (IDA), part of the World Bank Group that focuses on the 78 poorest countries. For fiscal year 2009, which ends on June 30, IDA grants and interest-free loans are expected to total more than US$13bn, a record high, and an increase on last year’s US$11.2bn.
In addition, demand has also grown rapidly at the International Bank for Reconstruction and Development (IBRD), the part of the World Bank Group that supports creditworthy low and middle-income countries. Loan volume is expected to increase to around US$33bn this fiscal year, compared to US$13.2bn last year.
The World Bank maintains it is important the G8 meetings this month and in July follow-up on the promises made at the Group of 20 meeting in London in April to restore domestic lending and the international flow of capital.
In addition, says the Bank, some of the main risks still remaining include the need to clean up the balance sheets and recapitalize banks, address the unique financial risks in Central and Eastern Europe, guard against a rise in protectionism, and roll over large amounts of private sector debt in developing countries.
The World Bank Group actively monitors global economic figures. On June 22, the Bank will release a report titled “Global Development Finance 2009: Charting a Global Recovery”.
