The World Bank Offers Little Hope For Short Term Recovery

Any hope of a recovery for the economies of developed nations in the near term was questioned rigorously by The World Bank. Growth in the developed world, in fact, will be inadequate so far as job creation and competition with the developing world go.

The new “World Bank’s Global Economic Prospects 2011” predicts that GDP expansion in “high income countries” like the US will remain well below 3% through 2012. Developing nation will be much more fortunate, probably based on their rapid increases in exports and consumer spending within their boarders. The World Bank expects GDP growth in these countries to above 6% in 2011 and 2010.

All forecast from organizations which hope to see the future come with caveats. None of these agencies want to take the chance that it could be entirely wrong. The World Bank’s numbers the risks at three: “tensions in European financial markets, large and volatile capital flows, and a rise in high food prices.” Theses are similar to the concerns voiced by most economists who write about the world’s recovery from the deep recession.

The solutions that The World Bank proposes are also like others put forward repeatedly. Implementing credible plans for restoring fiscal sustainability. and completing the re-regulation of the financial sector. This suggestion of more restrictions on the banking industry only shows The World Bank has missed the critical point.

The trouble in the developed world is the same this year as it was last, and it will remain the same in 2012. Deficits and national debt are too high. This means that there is a move toward austerity and higher taxes. Higher taxes and a lack of the sort of major stimulus measures put into place in 2008 will likely undermine any improvement in GDP. Low GDP growth means no improvement in job creation.

None of the large multinational economic policy organizations or think tanks have been able to solve the Rubik’s Cube that is the tension between stimulus and the need for expense contraction in the budgets of the EU, US  and Japan. The lack of stimulus has already taken a toll in Europe. The faith in the sovereign debt in many nations there has collapsed. The global capital markets do not believe austerity can foster GDP growth. The result is what The World Bank calls ” tensions in European financial markets.”

The agency cannot offer a solution to the trouble because at this time there is not one.

Douglas A. McIntyre