World Bank sees weaker prospects for global recovery

The World Bank today gave a gloomier forecast for the global economic downturn this year, and also cut its expectations for a turnaround in 2010.

From Bloomberg News:

The World Bank said the global recession this year will be deeper than it predicted in March and warned that a flight of capital from developing nations will swell the ranks of the poor and the unemployed.

The world economy will contract 2.9%, compared with a previous forecast of a 1.7% decline, the Washington-based lender said in a report. Growth will be 2% next year, down from a 2.3% prediction, the bank said.

The World Bank cut its forecast for the U.S. this year, calling for a 3% drop in the world’s biggest economy, after predicting a 2.4% contraction in March.

Japan’s gross domestic product will shrink 6.8%, more than the previous prediction of a 5.3%, the lender said. The euro area’s economy may shrink 4.5%, compared with the previous estimate of a 2.7% contraction.

The bank said its 2010 forecast "depicts a much more subdued recovery than during a normal recession, partly because this downturn follows a financial crisis . . . and partly because today's downturn has affected virtually the entire world, precluding the more typical scenario where recovery from a more geographically isolated downturn is at least partly achieved by exporting to healthier and more rapidly growing countries."

Most striking in the report is a chart showing unused factory capacity in key countries. More than 45% of Russian industrial capacity is idle, for example. In Japan, the figure is more than 35%. Brazil looks a lot better, at about 22% idled capacity.

The full report is here.

-- Tom Petruno