World Bank cuts back growth prognosis

Publish date: 23-06-2009
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The World Bank warns that the global economy's outlook remains 'unusually uncertain,' despite the fact that several signs of improvement have appeared in some parts of the world. Thus, in its Global Development Finance report the institution has modified downwards the GDP contraction prognoses for most of the big economies, Mediafax informs.

The institution has called for the world governments to show 'vigilance' in the process of devising the strategies through which the expansionist fiscal and monetary policy measures will be gradually eliminated.

According to the World Bank's report, the unprecedented expansionist economic policy measures could have severe adverse effects on future decisions if they will be maintained after the global economic recovery.

The World Bank forecasts an economic contraction of 4.5 per cent this year in the Euro Area, the largest economic bloc in the world, followed by a 0.5 per cent growth in 2010, in contrast to the previous estimates that pointed to a 2.7 per cent contraction in 2009 and a 0.9 per cent growth next year. The GDP of the United States, the largest economy of the world, will drop by 3 per cent this year but will grow by 1.8 per cent in 2010, according to the World Bank report. The institutions previously pointed to an economic contraction of 2.4 per cent in 2009, followed by a 2 per cent growth next year. In what concerns the large emerging economies, the Bank offers optimistic perspectives for China and India, however it significantly cuts back its estimates for Russia and Brazil.

In what concerns Romania, the World Bank is forecasting an economic contraction of 4 per cent this year, followed by a 0.5 per cent growth in 2010 and 2.5 per cent in 2011. In February the World Bank representatives pointed to an economic growth of 0-2 per cent in Romania this year, an estimate revised downwards from the 3.2 per cent growth estimate included in the Global Economic Outlook 2009 report presented in December last year. According to the same report, the current account deficit will register 8.4 per cent of GDP this year compared to 12.4 per cent of GDP last year, and is set to shrink to 7.5 per cent of GDP in 2010 and then to climb to 8.7 per cent of GDP in 2011.

The International Monetary Fund (IMF) anticipates a 4.1 per cent contraction in the Romanian economy this year, while the Economic Commission's prognosis puts the contraction at 4 per cent. For 2010 both the Fund and the Commission anticipate that the economy will stagnate. According to the National Statistics Institute, Romania's GDP has dropped by 6.2 per cent in Q1 of this year. When it comes to the emerging Central and East European economies, the World Bank forecasts an average economic drop of 1.6 per cent in 2009 and the stagnation of the GDPs next year, on the backdrop of most of the regional states gradually recovering from the crisis.

Among the most important risks in the region the institution signals the collapse of the foreign capital fluxes towards the emerging economies, the strong deterioration of the commercial activity and the steep drop in demand both on the export and internal markets. Justin Lin, the World Bank's chief economist, considers that the governments should continue to operate economic stimulus programs totaling hundreds of billions of dollars in order to 're-light' the economic growth, despite the signs that point to the surpassing of the 'lower threshold.'

The World Bank cut its GDP forecasts for Japan, as well as the United States and the euro area for this year and next. The 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, was releasing details on individual economies for the first time on Monday.

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