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World Bank warns of 2008-09 repeat for global economy



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When you look at the problems in Europe plus the slowing economy in China, it does look likely that this year will be a struggle. If this happens, will the political class finally wake up and make real adjustments or will it be more window dressing as we saw after the 2008 crisis? Until they feel the pressure from voters, few changes should be expected.

In its half-yearly health check on the global economy the Washington-based institution said the world had "entered a very difficult phase characterised by significant downside risks and fragility". The bank lowered its forecast for global growth in 2012 from 3.4% to 2.5% but said governments should be preparing for a downturn as bad as that which followed the collapse of Lehman Brothers in 2008. "An escalation of the crisis would spare no one," said Andrew Burns, manager of global macroeconomics at the World bank and the report's author. "Developed and developing country growth rates could fall by as much or more than in 2008-09. The importance of contingency planning cannot be stressed enough. It is clear that whatever probability is attached to this downside scenario, it has increased since June last year. "Developing countries should hope for the best and plan for the worst. If these downside risks materialised there is not much developing countries can do to prevent it. But they can prepare for it." He added that such countries should be drawing up list of public spending priorities and stress testing their banks.


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