World Bank predicts recession next year
Thursday 03 December 1998
The sister organisation to the International Monetary Fund warns that sharp stockmarket falls in the US and Europe, or a continuing pause in international capital flows, could bring global growth to a halt in 1999.
Even taking a more optimistic outlook, the developing countries face their worst growth prospects since the third world debt crisis nearly 20 years ago, it says.
Controversially, the new report also recommends that some developing countries should restrict or tax "hot money" capital flows to safeguard against future crises.
Joseph Stiglitz, the World Bank's chief economist, concludes that the recent crises reveal fundamental weaknesses in the international financial system.
"When a single car has an accident on a bend in the highway, one might infer something about the driver or his car. But when, at the same bend, there are accidents day in and day out, the presumption changes - there is probably something wrong with the road," he writes.
The bank welcomes the recent US interest rate cuts and Japanese fiscal package but calls for further measures to avert a deep global slump. The risk of a worsening recession in Japan and slower growth in the US and Europe if share prices suffer a sharp correction make prospects for 1999 precarious, the report warns.
It forecasts that global growth will nearly halve from 3.2 per cent in 1997 to 1.8 per cent in 1999, and puts a high probability on zero growth next year. The crisis-ridden Asian economies are likely to have seen an 8 per cent drop in GDP this year, with no growth in prospect next year.
Developing countries will be hit hardest. Brazil, Indonesia, Russia and other countries, accounting for a quarter of world demand, have suffered a decline in GDP per head this year.
The report argues for an expansion in demand, a better social safety net, and injections of public funds for banking reform in the crisis countries. It estimates that the cost will amount to 20 to 30 per cent of their GDP. "Continuing financial support from the international community is vital," it says.
The report comes out in favour of restrictions on the more volatile short- term capital flows in future to reduce the risk of repeat crises.
- 1 BBC election debate: The one photo that summed up the whole 90-minute leaders debate
- 2 A bottle of wine a day is not bad for you and abstaining is worse than drinking, scientist claims
- 3 18th century sex toy found in 'toilet of sword fighting school' in Poland
- 4 'I wish my teacher knew...': Young students share their 'heartbreaking' worries in notes
General Election 2015: David Cameron catching up in polls – but he badly needs a clear lead
The Hubble Space Telescope's amazing journey 25 years on
South Africa xenophobic attacks: Shops looted and violence on streets of Johannesburg as foreigners are forced to hide in police stations
Earthworms rain down from skies over Norway, puzzling scientists
18th century sex toy found in 'toilet of sword fighting school' in Poland
The only black face in the Ukip manifesto is on the page about overseas aid
Ukip is the only main political party to not address LGBT rights in its manifesto
If I’m being racially abused I don’t need a white stranger with a saviour complex to rescue me
BBC election debate: The one photo that summed up the whole 90-minute leaders debate
Religion isn't growing, it is becoming vigorous in its demise, says philosopher AC Grayling
Russian warships in English Channel 'to conduct anti-aircraft and anti-submarine military drills'
iJobs Money & Business
£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...
£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...
£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...
£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...