An article titled ‘World Bank cuts 2009 global growth forecast’ says the World Bank has cut its 2009 global growth forecast and now says the world economy will shrink 2.9% (an increase of 1.3% from its March forecast) this year as “The global recession has deepened”, that global trade is expected to drop by 9.7%, GDP now is expected to drop by 4.2% for high-income countries, and that economic growth in developing countries should slow to 1.2% percent – but excluding relatively strong China and India, developing economies will contract by 1.6%.

The article reports The World Bank also said in a report released yesterday that:

• economic damage to developing countries “has been much deeper and broader than previous crises”;

• unemployment is on the rise, and poverty is set to increase in developing economies. In this regard foreign direct investment in developing countries is projected to drop year/year in 2009 by 30% to U.S.$385 billion in 2009 (U.S.$707 billion in 2008, U.S.$1,159 billion in 2007);

• the global economy should start to grow again in late 2009, but “the expected recovery is projected to be much less vigorous than normal”;

• the ability of banks to finance investment and consumer spending would be hampered by the overhang of unpaid loans and devalued assets; and,

• “To break the cycle and revive lending and growth, bold policy measures, along with substantial international coordination, are needed”.

These new forecasts come as no great surprise to me as there is really nothing new here. The last bulleted point in my view is a broad statement that means nothing without detailed strategy and a ‘coordinator’ given the power to coordinate such an effort – I can’t see that happening any time soon. Accordingly, I will be surprised if the global economy starts to grow again in late 2009.

Early estimates of U.S. job losses for June ought to be reported in the next few days and I continue to believe that all of the talk about ‘green shoots’ will be for naught until the U.S. population ‘gets back to work’ and U.S. consumers again spend. If that happens I think the result may be short-term economic revival in the U.S. That said, I don’t believe that will solve the longer-term underlying U.S. economic issues of loss of manufacturing base (which will in a time of recovery lead to U.S. trade deficits increasing from current levels), continually escalating National Debt, and what must be a serious erosion in U.S. income tax revenues on all levels. While I sincerely hope I am wrong, I think the logical upshot of all of this going forward is reduced economic growth from prior levels and importantly, a reduced standard of living for U.S. residents from what they enjoyed up to mid-2008.

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