Money Matters - Simplified

WB report warns about European crisis

Washington -- The global economy is likely to grow 2.9 percent to 3.3 percent in 2010 and 2011 but Europe's debt crisis poses problems for global growth, the World Bank said.

In its latest Global Economic Prospects 2010, the bank said global economic recovery continues to advance "but Europe's debt crisis has created new hurdles on the road to sustainable medium term growth."

The report said after a growth of up to 3.3 percent this year and next, the GDP is expected to strengthen to between 3.2 percent and 3.5 percent in 2012, reversing the 2.1 percent decline in 2009.

Developing economies are expected to grow between 5.7 percent and 6.2 percent each year until 2012, but high-income countries were projected to grow between 2.1 percent and 2.3 percent in 2010 -- not enough to offset the 3.3 percent contraction in 2009, and between 1.9 percent and 2.4 percent in 2011.

The report said the bank's projections assume the International Monetary Fund and European institutions "would stave off a default or major European sovereign debt restructuring."
It said while the impact of the European debt crisis has so far been contained, prolonged rising sovereign debt could make credit more expensive and curtail investment and growth in developing countries.

The report warned the global recovery faces "several important headwinds" in the medium term, including lower international capital flows, high unemployment and spare capacity exceeding 10 percent in many countries.

The report said world merchandise trade has rebounded sharply and is expected to increase by about 21 percent this year, before growth rates taper down to around 8 percent in 2011-2012.

Copyright 2010 United Press International, Inc. (UPI).

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