World Bank Projects Global Slowdown
john posted in repost, Topical, What Iceberg? on January 26th, 2012
Another bad news prediction, and a commentary on how these predictions are getting more and more mainstream.
Nobody can predict the future, but outcomes can be predicted – if you stop paying your mortgage eventually you will lose your house and your credit in the US. If European ( or Japanese, or US) sovereign debt prices get too high, or if investors can’t or won’t help roll over sovereign debt, then there will be some sort of collapse. Financial collapses hurt the poor and developing nations first, but this one might well undo the ability of governments all over the Western world to borrow for long-term goals. Plus, austerity measures damp the economy which is having trouble growing as it is. Plus, a lot of people think economic growth can’t continue without growth in cheap energy supplies. And global growth is cheap energy is a fantasy. So wage deflation, job deflation, benefits deflation, public services deflation are likely. Inflation, the bugaboo of the Fed and the investing-rich, and a blessing for mortgage-holders, seems unlikely without growth.
The healthiest export economies in the developed world, Germany, China, are dependent on the health of the importing countries. Importing countries have too much sovereign debt, and their negative balance of payments can’t continue forever. The unhealthy export country, Japan, has way too much debt. It’s a house of cards.
But, nobody can predict the future. Plagues, wars, tweaking the financial or monetary system, asteroid impact, a sudden political maturing where citizens demand sustainable practice, anything could happen.
Press Release No:2012/236/DEC
Beijing, January 18, 2012 – Developing countries should prepare for further downside risks, as Euro Area debt problems and weakening growth in several big emerging economies are dimming global growth prospects, says the World Bank in the newly-released Global Economic Prospects (GEP) 2012.
The Bank has lowered its growth forecast for 2012 to 5.4 percent for developing countries and 1.4 percent for high-income countries (-0.3 percent for the Euro Area), down from its June estimates of 6.2 and 2.7 percent (1.8 percent for the Euro Area), respectively. Global growth is now projected at 2.5 and 3.1 percent for 2012 and 2013, respectively.
Slower growth is already visible in weakening global trade and commodity prices. Global exports of goods and services expanded an estimated 6.6 percent in 2011 (down from 12.4 percent in 2010), and are projected to rise by only 4.7 percent in 2012. Meanwhile, global prices of energy, metals and minerals, and agricultural products are down 10, 25 and 19 percent respectively since peaks in early 2011. Declining commodity prices have contributed to an easing of headline inflation in most developing countries. Although international food prices eased in recent months, down 14 percent from their peak in February 2011, food security for the poorest, including in the Horn of Africa, remains a central concern.
“Developing countries need to evaluate their vulnerabilities and prepare for further shocks, while there is still time,” said Justin Yifu Lin, the World Bank’s Chief Economist and Senior Vice President for Development Economics.
Developing countries have less fiscal and monetary space for remedial measures than they did in 2008/09. As a result, their ability to respond may be constrained if international finance dries up and global conditions deteriorate sharply.
To prepare for that possibility, Hans Timmer, Director of Development Prospects at the World Bank, said: “Developing countries should pre-finance budget deficits, prioritize spending on social safety nets and infrastructure, and stress-test domestic banks.”
While prospects in most low-and middle-income countries remain favorable, the ripple effects of the crisis in high-income countries are being felt worldwide. Already, developing country sovereign spreads have increased 45 basis points on average and gross capital flows to developing countries plunged to $170 billion in the second half of 2011, compared with $309 billion received during the same period in 2010.
“An escalation of the crisis would spare no-one. Developed- and developing-country growth rates could fall by as much or more than in 2008/09” said Andrew Burns, Manager of Global Macroeconomics and lead author of the report. “The importance of contingency planning cannot be stressed enough.”
A commentary from ETF daily News
January 19th, 2012
Michael Snyder: The warning signs are all around us. All we have to do is open up our eyes and look at them. Almost every single day there are more prominent voices in the financial world telling us that a massive economic crisis is coming and that we need to prepare for the worst. On Wednesday, it was the World Bank itself that issued a very chilling warning. In an absolutely startling report, the World Bank revised GDP growth estimates for 2012 downward very sharply, warned that Europe could be on the verge of a devastating financial crisis, and declared that the rest of the world better “prepare for the worst.” You would expect to hear this kind of thing on The Economic Collapse Blog, but this is not the kind of language that you would normally expect to hear from the stuffed suits at the World Bank. Obviously things have gotten bad enough that nobody is even really trying to deny it anymore. Andrew Burns, the lead author of the report, said that if the sovereign debt crisis gets even worse we could be looking at an economic crisis that could be even worse than the last one: “An escalation of the crisis would spare no-one. Developed- and developing-country growth rates could fall by as much or more than in 2008/09.” Burns also stated that the “importance of contingency planning cannot be stressed enough.” In other words, Burns is saying that it is time to prepare for the worst. So are you ready?
But of course it isn’t just the World Bank that is warning about these things. The chorus of voices that is warning about the next great financial crisis just seems to grow by the day.
Some of these voices were profiled in a Bloomberg article the other day entitled “Apocalypse How? Dire ’12 Forecasts“…