Global Growth Gets a Downgrade

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We all knew just how wrong it was as we sat there and listened to the World Bank going on in January about how world economic growth would top 3.2%. Today the World Bank has downgraded economic growth to 2.8%, which some might say is even over the odds. But, they can blame it all on Ukraine and the conflict over Crimea as the reason for the worsening of the situation. Does anybody actually trust or believe in the World Bank these days?

The World Bank is based in Washington and provides loans as a United Nations Organization agency to developing (and those that are supposedly developed but that are up the creek without anything like a paddle to get them out of it). The bank’s Vice President and Chief Economist Kaushik Basu said in a press conference today that “We are not entirely out of the woods”. Some might say that the clearing is nowhere in sight for the moment and no end of positive thinking will not bring about a turn in the economy.

• The World Bank has urged countries such as India, Kenya, Malaysia and South Africa to tighten fiscal policy and to step up structural reforms, downgrading their economic growth (developing countries) from 5.3% to 4.8%.
• The poorest 40% of the developed world are still not seeing stable jobs being created.
• The President of the World Bank Jim Yong Kim stated: “Countries need to move faster and invest more in domestic structural reforms to get broad-based economic growth to levels needed to end extreme poverty in our generation”.
• The World Bank believes that the financial markets will remain anxious and this will have severe consequences in the face of central banks making the move towards the end of quantitative easing and loose monetary policy, as well as an increase in rate increases.
• When interest rates get raised there will be a pull-back in liquidity.
• The US growth rate has been dropped from 2.8% to 2.1% now.
• Of course it has nothing to do with the policies of the US government but the weather conditions experienced during the winter months (when gross domestic product fell by 1% in the 1st quarter this year).
• Developed economies are estimated to contribute around 50% of global growth in the coming two years; whereas they made up for around 40% last year.
• The World Bank sees current account deficits declining and cash flow improving towards emerging markets. In emerging markets government deficits are over 3% of GDP and debt-to-GDP ratios have risen by 10%since 2007.

But, having said all of that it is surprising that the All-America Economic Survey believes in the latest figures published that Americans believe that they have a favorable opinion of the economy and their outlook in the country.

• They have even gone as far as to say that 91% of Americans are back to where they were regarding optimism in comparison with pre-crisis levels in March 2007 (concerning home prices and whether or not they will increase in the coming year, for example).
• Although there are only 18% of Americans that believe that the economy is excellent.
• Americans also believe that it is better to invest in real estate projects today than in gold.
• Gold had previously been the number one choice, but today it is in third position.
• 38% believe they will get a pay increase within the next twelve months.
• Only over a third (33%) of respondents believed that the economic situation in the country was bad.
• 28% believe that it will in fact get worse.
• 40% of Americans believe that it will remain the same.
• The survey was conducted d last week and there were 815 people polled (with a margin of error of 3.4%).

Oh, how blind we can be o the detriments of the real estate market. As long as the price of houses is increasing, the people are happy. One day, as we already have discovered, prices stop going up and come tumbling down on their heads, however. Nothing has changed. The last stock-market induced housing bubble was just a dress rehearsal for this time around.

The World Bank stated that “now is the time to prepare for the next crisis”. If we have the time, that is.

Originally posted: Global Growth Gets a Downgrade

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