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The global economy has passed the worst, but the recovery would be fragile, World Bank said Thursday, in its latest global economic outlook. The lender sees risks of asset bubbles in emerging Asian markets.
"The global economic recovery that is now underway will slow later this year as the impact of fiscal stimulus wanes," the World Bank said in a report titled Global Economic Prospects 2010. "The depth of the recession has left the global economy seriously wounded," the report said.
Raising its forecast, the bank said the global economy would expand 2.7% this year, up from 2% growth estimated in June. It follows an estimated 2.2% contraction in 2009, less than the initially predicted 2.9% fall. In 2011, the economy is expected to grow 3.2%, unchanged from the previous forecast.
Developing countries are expected to outperform developed nations this year, the report said. According to the report, growth in the developing countries would accelerate to 5.2% this year and to 5.8% in 2011, from 1.2% in 2009. At the same time, GDP in rich countries, which declined by 3.3% in 2009, is expected to increase much less quickly, by 1.8% and 2.3% in 2010 and 2011.
"Unfortunately, we cannot expect an overnight recovery from this deep and painful crisis," said Justin Lin, World Bank Chief Economist and Senior Vice President, Development Economics. "It will take many years for economies and jobs to be rebuilt."
The forecast from the World Bank came a day after the United Nations said the global economic recovery is uneven and conditions for sustained growth remain fragile. The UN expects global GDP to rise 2.4% this year after a 2.2% drop in 2009, the first contraction since the Second World War.
Matching the assessment of the World Bank, the UN said the major developed economies are not expected to provide a strong impulse to global growth in the near term, growing at a moderate 1.3% on average in 2010. Contrastingly, output growth in the developing countries is expected to recover at a faster pace of 5.3% in 2010.
Among the major developing nations, the World Bank sees China's growth at 9% in 2010 and India's expansion at 7.5%. At the same time, growth in developed economies such as the U.S. is seen at 2.5%, Eurozone at 1% and Japan at 1.3%.
The lender said this most likely scenario is clouded by considerable uncertainties. "If the private sector continues to save in order to restore balance sheets, a double-dip, recession, characterized by a further slowing of growth in 2011 is entirely possible - especially as the growth impact of fiscal stimulus wanes," the bank cautioned.
Further, the World Bank said unemployment and significant spare capacity are likely to pose challenges for policy makers in the post-crisis period. The bank also recommended to scale back extraordinary monetary stimulus gradually to avoid creation of new bubbles. "If policies are adjusted too slowly, inflationary pressures and additional bubbles could develop; too quick of an adjustment could stall the recovery," the lender warned.
The World Bank also warned that there is a risk of yet another round of "asset bubble" in emerging markets as the region receives large scale capital inflows. The bank said bursting of bubbles could carry adverse effects over the short to medium term.
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