Global Economy Will Contract More Than Expected in 2009, Warns World Bank

Green shoots?

More like ugly weeds, according to the World Bank.

The World Bank threw a bucket of cold water on those hoping for a swift global recovery in 2009, warning that the economies of "developed" countries will shrink more than expected this year.

Commodity prices and market indexes turned lower on the news, as many investors were of the opinion that the global economy was in the first stages of a buoyant comeback.

Not so fast, the World Bank warned on Monday.

When the economies of "developed" nations start growing once again, the World Bank said, don't expect the type of strong recovery that we have seen in the past.

High unemployment numbers and decreased consumer confidence will likely result in a much more tepid recovery than we have witnessed in years past.

The World Bank took an ax to their original growth estimates (released in March) for the global economy in 2009. Here is a quick review of their new estimates:

United States - 3% Contraction vs Original Estimate of 2.4% Contraction

Japan - 6.8% Contraction vs Original Estimate of 5.3% Contraction

Euro Zone - 4.5% Contraction vs Original Estimate of 2.7% Contraction

Russia - 7.5% Contraction vs Original Estimate of 4.5% Contraction

The list goes on and on.

The World Bank also warned that poverty-stricken countries will likely be hit the hardest in this downturn, due to weaker demand for exports and a significantly smaller amount of international aid.

Tepid growth prospects going forward certainly seem to increase the chances that we may witness a L-shaped depression, which is certainly the worst case scenario for the global economy.

Many economists are now looking to mid-2010 as the time when the global economy will officially begin to turn the corner.

What do you think?

When will the global economy finally start to turn the corner?

Source: Australian Broadcasting Corporation - Brace for long, deep recession: World Bank

Filed under: The Economic Meltdown

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