CHAPTER 6 Summer 2010: In for a Bumpy Ride, Even a Double-Dip?1

The World Bank’s “Global Economic Prospect Summer 2010 Report” carries both good and bad news.2 The good news: Global economy will grow faster than previously forecast. It now expects global growth of between 2.9 percent and 3.3 percent this year, up from a January 2010 forecast of 2.7 percent. Developing economies will spearhead recovery, growing three times as quickly as their high-income counterparts from now until 2012. For developing countries in East Asia, the World Bank projects growth of 8.7 percent this year, then slowing down in 2011 and 2012. China is projected to be the fastest-growing economy—up by 9.5 percent this year and 8.5 percent in 2011. But for the rebound to endure, high-income nations need to seize opportunities offered by stronger growth elsewhere. The bad news: While markets have improved, reaction to a possible debt default and eventual contagion reflects fragility of the current situation. Indeed, market nervousness concerning the fiscal position of several European high-income countries poses a new challenge for the world economy. Upheaval in Europe simply means a double-dip recession can’t be ruled out.

A Double-Dip?

Recent efforts from the International Monetary Fund (IMF) and other European institutions are expected to stave off a major European sovereign debt default. In this scenario, the World Bank expects high-income countries to grow just 2.1 to 2.3 percent this year—not enough ...

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