The World Bank published its new Global Economic Prospects 2011. The initial message in the report was “The financial crisis for most developing countries is over.” That statement must be news in places like the United States, Japan, the UK, and the southern European nations which are starved for cash. The report predicts that “Global growth is projected to remain strong from 2011 through 2013.” Worldwide GDP improvement should reach a 3.6% rate in 2012 and 2013.

The report contains the usual caveats which, when read, virtually negate the premise of the analysis. There are several factors which could almost completely undermine the global recovery. Among these are food and fuel price inflation and “concerns about fiscal sustainability in high-income countries.” Many economists believe that these problems are overwhelming now and most solutions are untested for a period after a crisis as deep and perplexing as the recession which may have passed.

Martin Wolf of the Economist recently wrote:

Of the six biggest advanced economies – the US, Japan, Germany, France, the UK and Italy – only the US and Germany had higher gross domestic product in the first quarter of 2011 than three years before and then only by a little. I regard the four laggards as being still in recession.

There is more evidence that Wolf is right than the Global Economic Prospects 2011 is.

The World Bank assumes that an uneven recovery can persist for the next several years and that nations such China can grow rapidly without significant inflation. Countries which include the UK can struggle with low receipts and austerity programs which could choke off expansion completely. The IMF recently cut its forecast for UK growth in 2011 from 2% to 1.5%. That is a sharp reduction, especially because it comes in the middle of the year which means that data to make the judgment is readily available and not just based on theory. The IMF encouraged the UK to pursue austerity with greater aggressiveness. There is no evidence the effects of that would not be regressive.

The accuracy of the World Bank forecast hinges mostly on what happens in the US, Japan, and China during the next three years. Together their GDP is $26 trillion. That is larger than the GDP of the next 15 biggest economies, Germany through Indonesia, combined. The US economy’s growth rate is currently no better than 2%. Job creation has stopped. Fuel costs could kill consumer spending, still the engine of American GDP. China may be able to grow at a 9% rate for the next several years. But, its economy could be overcome by inflation in the meantime. Low demand for its exports in the developed world is more and more likely. The Japanese economic recovery has been set back by a year or more because of the March earthquake.

It may not be a miracle if the worldwide economy grows by 3.6% next year and in 2013, but it would be close to one.

Douglas A. McIntyre

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