World Bank Sees Risk of Recession
Wednesday, 2 December 1998
(AP)
WASHINGTON (AP ) - The world economy still faces a substantial risk that
it could plunge into recession next year rather than experience sluggish
growth, the World Bank said Wednesday.
Events that could cause a slump, a new report said, include a worsening
recession in Japan, a loss of investor confidence that could halt the flow of
international capital to developing countries, especially in Latin America,
and a 20- to 30-percent plunge in stock markets in wealthy nations.
The lending institution made these observations in its annual economic
roundup that focuses on the developing countries and their experiences
with the economic crises that began in Asia 17 months ago and then
spread to Russia and Latin America.
In addition to forecasting growth rates for developing countries, the report
also deals with why the crisis had such a damaging effect, even in countries
with sound economies, and prevention of future shocks by the international
community.
With the frequency and cost of global crises rising, remedies need to be
devised and applied swiftly, said Joseph Stiglitz, the bank's chief
economist.
"When there is an isolated accident on the road, one tends to blame the
driver," Stiglitz said. "But when accidents occur repeatedly at the same
bend in the curve one begins to suspect something is wrong in the road.
"This report is devoted to understanding precisely what is wrong with the
road and how we can make it safer, both for the countries and especially
the poorest within them and how best to respond to the accidents that
inevitably will occur."
According to the report, growth in developing countries is expected to
diminish to 2 percent in 1998 from 4.8 percent in 1997, the worst
slowdown in 30 years for these nations.
"Although 1999 is likely to be another year of slow growth in developing
countries their situation could improve in 2000 and following years when
their per capita growth could return to the 3.5 percent pace of recent
years," the report said.
The report said that in Indonesia, South Korea and Thailand, the three
Asian countries hardest hit by the crisis, unemployment is expected to
more than triple, while the number of people forced into poverty could
reach 25 million in Indonesia and Thailand alone.
These countries and some other economies in Asia are unlikely to witness
a revival of the booming growth rates they recorded earlier in the decade.
"Following their deep crisis, East Asian economies are unlikely to return to
their extremely rapid growth rates of the early 1990s but recover to more
moderately strong growth , with more reliance on productivity gains and
less on high investment," the bank said.
The report said world economic growth in 1998 is expected to be 1.8
percent this year, down from 3.8 percent in 1997 with only a modest
recovery to 1.9 percent in 1999.
But the report also includes a worst-case scenario that shows the global
economy displaying no growth in 1999, with contraction in Japan and the
United States offset only by a modest expansion in Europe. |
