Led by continuing strong growth from China, and increasingly from other major economies, the World Bank sees global economic growth recovering to around 2.7% this year and 3.2% in 2011, after 2009 saw it contract by 2.2%.
But the bank has warned in its report, Global Economic Prospects 2010, that growth might slow as governments withdraw and cut back on their massive stimulus packages as 2010 goes on.
The World Bank said that the global economic rebound "now underway will slow later this year as the impact of fiscal stimulus wanes"
"Financial markets remain troubled and private sector demand lags amid high unemployment.
Gross domestic product (GDP) growth in developing countries is forecast to rise 5.2% this year and 5.8% in 2011 — up from 1.2% in 2009.
The World Bank sees China’s economy growing 9% in each of this year and in 2011.
That’s marginally higher than the 8.7% reported for 2009 yesterday in Beijing.
But it is much less than the 10.7% growth rate achieved in the 4th quarter of 2009 (and less than the 9.6% outcome for all of 2008).
It was in fact the lowest growth for China for 8 years.
The Bank suggested that there was some evidence of asset bubbles appearing in China.
Inflation is a worry, as yesterday’s figures confirm (see accompanying story).
But China will nevertheless be the stand-out performer this year and next globally, as it has now for much of the past decade.
And that’s good news for Australia.
But the World Bank said developed economies will recover, but it will be slow and fitful.
They shrank by an estimated 3.3% last year and are expected to expand by a not very convincing 1.8% in 2010 and 2.3% next year.
The US, the world’s biggest economy and the epicentre of the financial crisis that triggered the crunching recession, is forecast to have growth of 2.5% this year and a sluggish 2.7% in 2011.
The World Bank in fact raised its forecast for US growth from the 1.8% estimate of last June.
The higher forecast for this year comes after an estimated contraction of 2.5% for 2009.
Japan’s gross domestic product will grow 1.3% this year, more than the 1% prediction of last June.
The euro area’s economy is forecasted to grow 1%, double the forecast of June of 0.50%.
World trade volumes, which fell by a staggering 14.4% in 2009, are projected to expand by 4.3% and 6.2% this year and in 2011, which would still leave them well below volumes in 2008.
The World Bank warned that considerable uncertainty continues to cloud the outlook.
Depending on consumer and business confidence in the next few quarters and the timing of fiscal and monetary stimulus withdrawal, growth in 2011 could be as low as 2.5%, or as high as 3.4%.
"Unfortunately, we cannot expect an overnight recovery from this deep and painful crisis, because it will take many years for economies and jobs to be rebuilt. The toll on the poor will be very real," said Lin, the World Bank’s chief economist.
"The poorest countries, those that rely on grants or subsidized lending, may require an additional 35-50 billion in funding just to sustain pre-crisis social programs," he said.
“The recovery that we are projecting is by far not strong enough to undo the damage that was done in 2009,” Hans Timmer, director of the Development Prospects Group at the World Bank, told a Washington briefing.
“In most of the countries, unemployment will further increase.”
The “weak” recovery this year and next applies to industrial and developing economies alike, the World Bank said in its report.
Regulation in advanced economies may hurt credit and capital flows to low-income countries, cutting trend growth by as much as 0.7% a year in the next five to seven years, the report said.
The bank said a relapse into a recession or a stronger-than-expected recovery can’t be ruled out.
It said that if stimulus measures are withdrawn too quickly the recovery could stall, and if programs are kept in place too long, debt may rise and private investment could be restricted.
The rapid monetary expansions in many economies could also spark new inflation, although there’s little sign of that in Japan (deflation is the bigger worry), the US, Europe and the UK.
“The unusual depth of the recession will mean that spare capacity and unemployment will continue to plague economies in 2011,” the bank said.
“The extraordinary monetary stimulus needs to be scaled back to avoid the creation of new bubbles.”
The bank’s higher forecasts will be followed by the International Monetary Fund, later this month.
"Overall, these are challenging times," said Justin Lin, World Bank Chief Economist and Senior Vice President, Development Economics.
"The depth of the recession means that even though growth has returned, countries and individuals will continue to feel the pain of the crisis for years to come," he said.
The report warns that while the worst of the financial crisis may be over, the global recovery is fragile.
It predicts that the fallout from the crisis will change the landscape for finance and growth over the next 10 years.
