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World Bank Cautions Against Recovery Talk

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http://www.telegraph.co.uk/finance/economi...overy-talk.html

The Bank also delivered a more pessimistic outlook for this year, expecting the world's gross domestic product (GDP) to contract by a record 2.9pc. In March it had predicted a decline of 1.7pc.

Although acknowledging that major economies are no longer in free fall, the World Bank is far more cautious than the International Monetary Fund about the strength of a recovery.

The Bank explained its caution comes "partly because this downturn follows a financial crisis - which tends to be deeper and longer-lasting than normal ones - and partly because today's downturn has affected virtually the entire world."

It does expect global GDP to rebound to 2pc next year and 3.2pc in 2011 - weaker than the expansion enjoyed in recent years.

Experts are divided on how quickly a recovery will emerge given the stresses still facing banks and rising unemployment in many parts of the world. The US and China, according to the Bank's report, are the economies that look closest to emerging from the downturn.

The report also issued a bleak outlook for the world's second and third-tier economies, as investment and trade flows dry up. Excluding China and India - the biggest emerging economies - the Bank expects gross domestic product for developing economies to contract 1.6pc this year.

The prospect of more currency crises is growing as countries face a double squeeze from declining exports and a depreciation in their own currency rates. After peaking at $1.2 trillion in 2007, the Bank expects the amount of money going into developing economies to tumble to $363bn this year.

"To prevent a second way of instability, policies have to focus rapidly on financial sector reform and support for the poorest countries," said Hans Timmer, a director at the World Bank.

However there's still talk of growth next year!!!

A second wave of instability seems inevitable especially when the mortgage reset kick in at the end of the year.

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