WB says 2008 ghost haunts global economy

WASHINGTON – The World Bank has warned that the global economy could return to the dark days of the 2008 crisis, with slowing growth and rising commodity prices.

After the recession in 2009 and the 2010 rebound, the multilateral institution said, 2011 is expected to be a year of deceleration.In its latest projections, the bank estimates global growth of 3,3 per cent this year following a 3,9 per cent rate in 2010. Emerging and developing countries were expected to expand 6,0 per cent, down from a 7,0 per cent pace in 2010, the bank said in its latest Global Economic Prospects report.But that was more than double the 2,4 per cent rate expected to be clocked by high-income countries this year, slowing from a 2,8 per cent rate in 2010.Growth in both high-income and developing countries, however, was expected to pick up toward mid-2011, and ‘settling at rates close to their longer-run potential’.For 2012, growth in the global economy was seen rising at a 3,6 per cent rate. High-income countries were expected to expand by 2,7 per cent and developing countries would speed up just a notch, to 6,1 per cent.Still, the overall pace of growth is too weak to give the recovery solid traction, the World Bank said.’Unfortunately these growth rates are unlikely to be fast enough to eliminate unemployment and slack in the hardest-hit economies and economic sectors.’In addition, ‘serious tensions and pitfalls persist in the global economy, which in the short run could derail the recovery to differing degrees,’ it warned.Threats that could derail the recovery include the eurozone financial market crisis, volatile capital flows and the rising prices of commodities, including food and fuel, the 187-nation institution said.The World Bank expressed particular concern about rising commodity prices, including food and fuel, driven by loose monetary policies in the developed countries and solid demand in the emerging economies.’Although real food prices in most developing countries have not increased as much as those measured in US dollars, they have risen sharply in some poor countries,’ the World Bank said. ‘And if international prices continue to rise, affordability issues and poverty impacts could intensify.’’We are very concerned about the rise in the food prices… We see some similarities with the situation in 2008, just before the financial crisis,’ Hans Timmer, the bank’s director of development prospects, said at a news conference.In 2008, oil prices surged above US$147 a barrel in July, then fell to nearly US$30 six months later.Currently around US$92 in New York, oil prices are above the bank’s estimate of US$85 a barrel on average in 2011, compared with US$79 in 2010. Commodity prices excluding oil were expected to dip 0,1 per cent in dollar terms.The 2008 scenario of soaring food and oil prices amid slowing growth, which had revived the word ‘stagflation’, would likely be avoided, the World Bank said, as long as supply follows the rhythm of demand.’The situation is also slightly different from 2008, because first of all in the grain markets, the stocks are much larger than the tight situation then, and also, it [the market] is much more localised, much more diverse’ than for the industrial commodities, Timmer said.In 2008, a powerful surge in commodity prices was abruptly snuffed out by the bankruptcy of US investment bank Lehman Brothers in September.Asked how conditions would be different this time, the economist said he hoped that supplies would respond to demand.’You have there still large stockpiles, which were not available in the crisis of 2008, but clearly we are in an upward trend,’ he said.’And the consequences for people and individual countries can be serious.’- Nampa-AFP