	Generational Dynamics
	Forecasting America's Destiny ... and the World's

\| HOME \| WEB LOG \| COUNTRY WIKI \| COMMENT \| FORUM \| DOWNLOADS \| ABOUT \|

Generational Dynamics Web Log for 07-Apr-05
World Bank warns that global economy recovery has "peaked"

Web Log - April, 2005

World Bank warns that global economy recovery has "peaked"

Saying that global economic growth is at a "turning point," the World Bank's annual Global Development Finance report, predicted a slowdown in global growth, and that the slowdown could be quite severe.

"The global economy is at a turning point," says the report. "Growth has peaked, and pressures to address global imbalances are growing, exposing important risks facing both developed and developing countries as the needed adjustments occur."

In some scenarios the adjustment could be mild, but a new global recession is also a possibility. "A reduction in the pace at which central banks are accumulating dollars, a weakening in investors' appetite for risk, or a greater-than-anticipated pickup in inflationary pressures could cause interest rates to rise farther than projected, providing a deeper-than-expected slowdown or even a global recession."

Actually, this is not a new prediction. Many analysts last year predicted that there would be a recession this year, and they gave exactly the reasons that are now being given in the World Bank report:

Last year, analysts predicted that if the price of oil stayed above $40 a barrel, then it would put the world into a recesion. The World Bank repeats this reason, and of course it's a lot worse than expected, since the price of oil is now close to $60 a barrel.

There were big refunds to taxpayers a year ago, thanks to the legislated tax cuts, but those refunds have long since run out. The report points out that many countries around the world used fiscal stimulus to help recovery from the 2000/2001 recession, and that without that stimulus, a recession is more likely.

America has been raising interest rates. This is going to cause a fiscal crunch in many developing countries, and is the most important potential factor in causing a major global recession. As we pointed out in yesterday's article (see next item, below), this is going to force China into a financial crisis as early as this year, causing a potential chain reaction.

The following are some graphs from the report:

Industrial production has been slowing around the world (page 36)

Industrial production has been slowing around the world (page 36)

Industrial production slowed around the world (excluding China) dramatically in 2004, and is expected to continue falling in the developing countries, and remain flat at a low level in high-income countries.

Foreign countries are financing the US account deficit (balance of payments) (page 38)

Foreign countries are financing the US account deficit (balance of payments) (page 38)

This graph shows who is financing the US current account deficit:

Foreign official assets and government securities is the category that's been growing exponentially. This is the purchase of US treasury bonds by foreign central banks.

Foreign direct investment (FDI) plus equity investment used to be the biggest category, representing foreign investors sending money to America in the form of private investments. By 2004, this category had a large negative value, meaning that American investors are investing overseas.

Other private securities and banking has remained relatively unchanged.

Foreign exchange reserves in developing countries (page 58)

Foreign exchange reserves in developing countries (page 58)

Because developing countries have been purchasing America's debt, the foreign exchange reserves held by these countries has been skyrocketing. The major countries include: China, India, Thailand, Malaysia, Venezuela, the Czech Republic and Pakistan.

Short / Long term interest rates in U.S. (page 40)

Short / Long term interest rates in U.S. (page 40)

This graph shows "real interest rates." The Fed lowered interest rates to 1% by 2002, but since this was lower than the inflation rate, short-term interest rates were actually effectively negative. In fact, they're still negative today. Long-term interest rates are positive, but still effectively close to zero.

Worldwide commodity prices have been rising since 2002 (page 43)

Worldwide commodity prices have been rising since 2002 (page 43)

Commodity prices have been skyrocketing since late 2003, thanks to huge demands from China. The rise in agricultural product prices is especially disturbing because it pushes huge masses of people around the world into poverty and starvation.

Most of the new demand for commodities is coming from China (page 43)

Most of the new demand for commodities is coming from China (page 43)

In just the last year, China's share of commodity demands has skyrocketed, to almost equal the rest of the world combined. (The OECD is the Organization for Economic Co-operation and Development, a group of 30 countries, including the United States that furnish international aid to developing countries.)

Global military spending, 1992-2003 (page 104)

Global military spending, 1992-2003 (page 104)

Global military spending decreased in the 1990s, but has been increasing steadily since 2000.

I've been reading enough of these analyses now to get the impression that many analysts expect something serious to happen this year, some time in the summer or the fall.

From the point of view of Generational Dynamics, America is entering a 1930s style Great Depression. (07-Apr-05) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Web Log Pages

Current Web Log

Generational Dynamics Web Log for 07-Apr-05 World Bank warns that global economy recovery has "peaked"

Web Log Pages

Generational Dynamics Web Log for 07-Apr-05
World Bank warns that global economy recovery has "peaked"