The head of the World Bank has put a figure to the bank’s estimate this week that global economic growth will contract in 2009.
President Robert Zoellick told a London newspaper that output likely to shrink by 1% to 2% this year.
The forecast was backed up by more bad news from Japan, Germany and China.
He said central and eastern European countries were particularly vulnerable, and again urged rich nations to do more to fill the financing gap left by an exodus of capital from the developing world.
"My guess is that growth will probably fall about 1 to 2 percent," he told the Daily Mail’s its Thursday edition.
"We haven’t seen numbers like that since World War Two, which really means the Thirties. So these are serious and dangerous times."
The bank issued its warning on Tuesday, which took many by surprise.
A day later, the head of the International Monetary Fund, Dominique Strauss-Kahn, warned that the globe would be gripped by a "Great Recession" and that the IMF’s earlier forecasts for economic growth of 0.5% (which amounts to a static year) were too optimistic.
He now believes the world will contract this year. The IMF will produce updated forecasts ahead of the April 2 Group of 20 finance ministers meeting in London.
Mr Zoellick said the G20 should focus on sorting out problems in the banking system rather than additional fiscal measures to boost demand.
That’s a stance that will put him odds with the United States and Britain which this week urged G20 nations to increase spending to pull the world economy out of recession by stabilising and then boosting demand.
His views on stabilising banking puts him alongside of Fed chairman, Ben Bernanke, who uttered similar sentiments this week. But Mr Bernanke also believes the stimulus packages should be spent quickly and be large. That’s also a view of the IMF/
Mr Zoellick told the paper that world trade would probably fall at its fastest rate in 80 years.
Eastern Europe was especially at risk, he said, noting that many countries in the region had the problem of assets such as mortgages denominated in foreign currencies which had leapt in local terms.
The forecasts were given support from the latest figures from Japan.
The economy didn’t contract by an annual rate of 12.7% in the December quarter as originally estimated; final figures out yesterday show it was a 12.1% contraction.
A small improvement, but one not connected to anything but the statistics.
The economy shrank 3.2% from the previous quarter, or an annualized 12.1% fall.
A small rise in inventories (0.5% added to growth, compared with 0.4% in the first estimate) led to the slight improved revision.
Analysts said that is actually more bad news because it reflects there are more stocks of unsold goods in the system, meaning further downward pressure on production, sales and orders (not to mention employment) in coming months.
The revised GDP figures were shy of the record 3.4% contraction in the March quarter of 1974 when the first oil shock was hitting the country.
The slump is about what most analysts were forecasting after the initial fall of 3.3% in the quarter and an annual 12.7%.
Net exports (exports minus imports) cut 3.0 percentage points off GDP in the fourth quarter, in line with the initial estimate, they fell more than 30% that month (and more than 46% in January).
Business investment fell 5.4%, down slightly from the 5.3% drop initially estimated. The two are linked (as was this week’s fall in the latest estimate for Japanese factory orders).
In contrast the 15 nation euro zone economy shrank 1.5% in the same period, but Germany was down over 2% and is still contracting. The United States contracted an annualized 6.2% or 1.6% from quarter to quarter.
By contrast Australia contracted at 0.5% in the 4th quarter on the September quarter, but we still had positive growth over the year.
But regardless of what the figures might say, Japan’s economic slump is its worst since the war and many economists say it also becoming the longest, as the economy contracts for most, if not all of 2009.
Later today we get an update on January’s record 10% plunge in industrial production: there’s every chance it might be a bit deeper than first thought, as was December’s figure.
Japan’s Financial Services Agency said this week it will start to audit banks next month to make sure they lend.
The government is also offering to help buy shares from banks and to acquire stakes in lenders to aid loan growth.
It’s also putting aside $US5 billion from its foreign exchange holdings to lend to companies with overseas operations (such as the car groups) that are finding hard to finance their basic businesses offshore).
Meanwhile somewhat confusingly China said yesterday its industrial production grew at a faster pace in February, but the real story was another bit of grim news.
It said output rose 11% in February from a year earlier. That compared with a 3.8% gain in January and February combined and 5.7% in December.
But the real story was that the 3.8% rise in the first two months of 2009 compared with the same period of 2008, when the growth was 15.4% year on year for the two month period.
The 11% refers to February of this year, but was not compared with the same month of 2008 when the Lunar New Year fell and the month had five fewer working days.
It’s all to with the way the Lunar new Year is accounted for: it was in February in 2008 and late January this year.
If output grew 11% in just February, the gain over January and Febru
