January 18th, 2012
06:53 PM GMT
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London (CNN) – The World Bank is not an organization noted for hyperbole and exaggeration. Certainly the sober-suited Washington bankers don't usually go around the world forecasting calamity, unless it is to drum up more support for the disadvantaged and poor.

And that's why their comments surrounding the Global Economic Prospects for 2012 were so unusual. The bank has just downgraded growth estimates for this year, by the biggest amount in three years.

It forecasts the euro area will be in recession (-0.3 %) and developing nations will see growth at 5.4%, down from earlier forecasts of more than 6 percent.

What is most surprising is the clarion call that the outcome for emerging and developing countries could be every bit as bad as 2008-09.

Andrew Burns, the author of the report, warns that an "escalation would spare no one" and growth "could fall by as much or more than in 2008-09." Serious stuff indeed.

At the core of the problems are, of course, the eurozone debt problems and the ripple effects that spread across the globe.

Exporting countries like China will feel the effect as poorer Europeans can no longer buy their products.

At the same time, as the Chinese government is touching the brakes to slow the economy, the U.S. is also starting to slow down as a result of Europe, and there the Obama government has limited room to pick up the fiscal slack.

In fact the canaries warning of dangers ahead are now singing their call just about everywhere.

Whether it is the IMF today asking for a further $500 billion to build up its war chest to fight the debt crises; or The World Bank warning of awful times ahead; or S&P downgrading France et al, we are on notice that the situation is grave and probably getting worse.

Minor incremental gains are usually followed by swift reversals of fortune - witness the way the ECB has warned negotiators of the new EU treaty not to water down their commitments at the December Summit to avoid budget deficits by inserting a get-out-clause in the final treaty.

All of which makes it even more remarkable that politicians and policy-makers keep patting themselves on the back and congratulating each other on the progress being made, especially in the euro zone.

The dangers in Greece are still very real. Banks are hoarding money overnight in record amounts, there is still a crisis of confidence and now, the World Bank has joined in too. Let no-one say we haven't been warned.

soundoff (12 Responses)
  1. Leonard

    The whole world is about to hit a brick wall. subs.triorbit.com

    January 18, 2012 at 11:17 pm |
  2. Phil

    This is classic depression economics. There was a slight recovery in the years after the crash and then it dipped hard again. Same thing is happening now. We are making the exact same mistakes we did last time and expecting different results. We are cutting taxes and expenditure and hoping it will boost growth. It won't. The correct response, the one that worked, was the New Deal. Jack up rates. WPA. Infrastructure. Think tanks. Food kitchens. Subsidized Housing. Defaults.

    January 19, 2012 at 12:14 am |
  3. Dennis

    On the other hand, judging by how well bankers foresaw the crushing flaccidity following the great mortgage/credit-default-swap orgasm, it is likely that we will simply lurch and sputter along - certainly on reduced power - but lurching and sputtering with safety nets is better than the war that took the world out of the depression!

    January 19, 2012 at 3:47 am |
  4. passingby

    wow!.. still remember being a fan of their film back in collage. kinda sad read this news.

    January 19, 2012 at 7:26 am |
  5. H. B.

    I'm not an economist, but one thing I DO know. If you try to use a solution that has been tried – and failed – it should never be used again. Assuming that "this time, the results will be better" is childish and very likely malevolent.

    Other than more wars, what are the things which HAVE worked in the past to improve a sagging economy?

    It is those – maybe even upgraded to fit our digital society – that we should be studying – and in EARNEST.

    Only the mega-mega wealthy will be able to survive a total collapse of the world economy. THEY are the ones who will gladly give it to us, too. If they had to try to subsist on dirty water and a crust of stale bread, for REAL, not just temporarily, they might gain some insights that they totally lack now. But I don't support torture, even of them.

    One of the very first steps is to say a very flat "NO!" to the mega-mega rich, because the decline of the world economy is very much THEIR brainchild. We should stop allowing them to be the arbiters of what is good economics and what isn't. They already DO know these things. Trouble is, they want things to get WORSE, not better, because it won't touch them, except to make more opportunities available to get richer.

    Start from scratch with the people at IMF, World Bank, and all the other venerable agencies. Kick them OUT and put in people of reasonably normal means and with high expertise on economics. People who will be directly and equally AFFECTED by the policies they espouse for the rest of us.

    January 19, 2012 at 10:07 am |
  6. David

    The "world middle-class lifestyle" isn´t yet defined, but it is on the way. To the U.S. "middle class" it will feel comparatively worse. I think the U.S. had a wonderful 25 years from 1946 to 1971 based in part on the rest of the world being in such terrible shape after WW2. Memories of that U.S. prosperity are basically psychological baggage at this point. For what it´s worth (and it´s worth a great deal from a human standpoint) the poorest chinese, indian and african workers have a brighter future than ever before. Just don´t show me sociopathic (think mercenary) businessmen making ridiculously huge incomes by taking advantage of it, thinking somehow they´re brilliant. They aren´t.

    January 19, 2012 at 3:20 pm |
  7. caertoi

    The New Deal did not end the Depression. WWII did.

    January 19, 2012 at 5:03 pm |
  8. rendrag

    "escalation would spare no one"

    Except the people at the World Bank and Wall St executives. I can't see any of them having their homes taken and losing their jobs and pensions.

    If there was any danger of that happening they would just get the public purse to bail them out (Corporate-Only Socialism) and then go back to their culture of huge bonuses and no regulation.

    January 19, 2012 at 8:33 pm |
  9. Muckdiver

    Just follow the money- identify the vested interests and you have your why. Out them and maybe they will be more responsible, public humiliation can work.

    January 19, 2012 at 11:48 pm |
  10. peterr54


    Why are you of all people still pretending these blokes in blazers have it all under control when you know its game over?
    Even Christine Lagarde of the IMF, as the only woman in this male-dom sick society, will not be spared.
    You may be holed up Stateside believing that is a "safe haven" when it all does go belly up, but we the 99% have been well and truly indoctrinated by George W. Bush when he told us,

    "This act will not stand; we will find those who did it; we will smoke them out of their holes; we will get them running and we'll bring them to justice. We will not only deal with those who dare attack us we will deal with those who harbor them and feed them and house them,"

    Camp David, Maryland, 9/15/01

    "Make no mistake about it: This is good versus evil. These are evildoers. They have no justification for their actions. There's no religious justification, there's no political justification. The only motivation is evil."

    Washington DC – 9/25/01

    January 21, 2012 at 9:30 pm |
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    Useful topic

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    September 15, 2012 at 5:26 pm |

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