World Bank: Pessimistic report on global growth

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Most economists and agencies that track and forecast worldwide Gross Domestic Product see the recession moderating at the end of this year and growth returning to most regions in 2010. The World Bank doesn't agree.

New forecasts from the organization are for a 2009 global GDP contraction of 3 percent. Its forecast in March was more optimistic, predicting a drop of 1.75 percent.

According toReuters, the World Bank's president Robert Zoellick said, "I personally believe you might be able to see some aspects of recovery in 2009 and 2010, but from a policy point of view, that isn't the core question because we have a large degree of uncertainty."

Why might Zoellick be right? There are several reasons. The first is that oil is trading much higher than most analysts forecast, at $72 and rising most days. At some point the cost of crude will undermine profits at many businesses and the ability of consumers to spend money on more than gasoline.

The next factor is interest rates. The U.S. is in the market selling hundreds of billions of dollars. It is joined by most developed countries trying to raise money to offset deficits. An increase in rates based on huge demands for capital could hurt business spending and consumer credit.

Perhaps the biggest threat to the world economy is that, at some point soon, large countries like China and the U.S. will have eaten through the money set aside for stimulus packages. If the stimuli have not worked, unemployment will rise and the world's largest economies could slip back into recession.

Otherwise, everything is fine.


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