HOPES of a global recovery were dealt a blow yesterday after the World Bank slashed its 2009 growth forecasts and said the burden of bank restructuring will hinder recovery in developed nations.
The Bank said the US economy will shrink by three per cent this year and the eurozone by 4.5 per cent, compared to the 2.4 per cent and 2.7 per cent contractions it forecast back in March.
In Japan the recession will cause a 6.8 per cent contraction this year, not the 5.3 per cent contraction it forecast three months ago, the bank warned.
World Bank chief economist Justin Lin said banking industry restructurings and the limited effectiveness of quantitative easing would “prevent a global rebound from gaining traction”.
Olivier Blanchard, chief economist at the International Monetary Fund, said yesterday the US will only achieve a sustained recovery after an increase in exports. For this to happen, he said, the nation would first have to see a downward correction in the price of the dollar.
The grim news overshadowed an update of Japan’s Tankan survey, which showed a fall in pessimism among Japanese manufacturers in the three months to June.
Also drowned out was news that the German Ifo business sentiment index rose for a third straight month to reach 85.9 points, well ahead of market expectations for 85.3 points and up from a revised 84.3 points in May.
The Ifo institute said that while firms’ dissatisfaction with the current business situation was just as strong as it was in May, the survey results “confirm that the German economy is gradually stabilising”.
However, Ifo economist Klaus Abberger added that Germany had yet to reach the turning point that would lead to a recovery.