World Bank warning is bleak

Traffic moves through Phnom Penh. Cambodia’s GDP is set to rise by 6.0 percent this year, according to the World Bank. BLOOMEBERG

via CAAI

Friday, 14 January 2011 15:00 AFP/ELLIE DYER

THE World Bank has warned the global economy could return to the dark days of the 2008 crisis, with slowing growth and rising commodity prices.

After the recession in 2009 and the 2010 rebound, the multilateral institution said, 2011 is expected to be a year of deceleration.

In its latest projections, the bank estimates global growth of 3.3 percent this year following a 3.9 percent rate in 2010. The organisation’s estimate of Cambodia’s GDP growth last year remained steady at 4.9 percent, with a forecast of 6.0 percent and 6.5 percent for 2011 and 2012 respectively.

Cambodia’s 2010 inflows of remittance were estimated to have risen 7.7 percent last year to US$364 million, while tourist arrivals were estimated at 2.251 million – slightly below the Ministry of Tourism’s official figure of 2.509 million.

Emerging and developing countries were expected to expand 6.0 percent this year, down from a 7.0 percent pace in 2010, the bank said in its latest Global Economic Prospects report.

But that was more than double the 2.4 percent rate expected to be clocked by high-income countries this year, slowing from a 2.8 percent rate in 2010.

Growth in both high-income and developing countries, however, was expected to pick up toward mid-2011, and “settling at rates close to their longer-run potential.”

For 2012, growth in the global economy was seen rising at a 3.6 percent rate. High-income countries were expected to expand by 2.7 percent and developing countries would speed up just a notch, to 6.1 percent.

Still, the overall pace of growth was too weak to give the recovery solid traction, the World Bank said. “Unfortunately these growth rates are unlikely to be fast enough to eliminate unemployment and slack in the hardest-hit economies and economic sectors.”

In addition, “serious tensions and pitfalls persist in the global economy, which in the short run could derail the recovery to differing degrees,” it warned. Threats that could derail the recovery include the eurozone financial market crisis, volatile capital flows and the rising prices of commodities, including food and fuel, the 187-nation institution said.

The World Bank expressed particular concern about rising commodity prices, including food and fuel, driven by loose monetary policies in the developed countries and solid demand in the emerging economies.

“Although real food prices in most developing countries have not increased as much as those measured in United States dollars, they have risen sharply in some poor countries,” the World Bank said.

The 2008 scenario of soaring food and oil prices amid slowing growth, which had revived the word “stagflation”, would likely be avoided, the World Bank said. In 2008, a powerful surge in commodity prices was abruptly snuffed out by the bankruptcy of US investment bank Lehman Brothers in September.

Asked how conditions would be different this time, Hans Timmer, the bank’s director of development prospects, said he hoped that supplies would respond to demand.

“You have there still large stockpiles, which were not available in the crisis of 2008, but clearly we are in an upward trend,” he said.