World Bank Raises '10 Outlook, Sees Risk Of Double Dip In '11

[Purveyor]

By Tom Barkley, Of DOW JONES NEWSWIRES

WASHINGTON -(Dow Jones)- The world economy is recovering surprisingly fast from the first recession since World War II, but the World Bank sees a risk of a double-dip slowdown if private demand can't replace public stimulus.

Releasing its first global economic forecasts since June, the World Bank was more upbeat about this year's outlook, with the rate of recovery expected to reach 2.7% instead of 2%. The contraction in 2009 was also estimated to be more modest than expected, a drop of 2.2% instead of 2.9%.

The 2011 forecast was left unchanged at 3.2%. But the bank painted a more sobering picture for next year and beyond, as credit conditions remain tight and governments start to withdraw extraordinary support measures.

"If the private sector continues to save in order to restore balance sheets, a double-dip recession, characterized by a further slowing of growth in 2011, is entirely possible--especially as the growth impact of fiscal stimulus wanes," the bank said.

Policymakers are faced with the difficult task of keeping stimulus in place long enough for private demand to catch up, but not too long as to create unsustainable debt loads or new asset bubbles.

Hans Timmer, director of the World Bank Prospects Group that prepared the report, said in an interview that it is too soon to consider withdrawing the stimulus. But more important than the timing is the type of stimulus that needs to be supplied, he said, since new sources of growth are needed to make up from the wide output gap created by the crisis.

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[valerief]

1. Well, at least we can sleep at night, comfortable in cardboard boxes under the freeway,

knowing that the very wealthy can only get wealthier in years to come.

[pscot]

3. A local appliance store

has promised to save an empty refrigerator backing case for me if they ever sell another one.

[FreakinDJ]

2. Wall St. Banks will cause the "Double Dip" by NOT lending

to consumers or small businesses

[xchrom]

4. +1