MercoPress. South Atlantic News Agency

China is crucial for world recovery says World Bank

In four months the global economy lost the equivalent of the accumulated advance of the previous four years.

The World Bank believes the end of the global crisis will come following the recovery of the emerging economies, particularly China. The statement follows the presentation of the latest report, Global Financial Development 2009; a path for global recovery” by economists Mansoor Dailami and Hans Timmer.

“We are facing a complicated landing scenario”, said Dailami who revealed that global industrial production and international trade declined 15% in the four months from September 2008 to January 2009, which is equal to the accumulated advance of the previous four years.

Although the global economy is sending increasing signs of “stabilization”, according to the latest data, the World Bank does not consider that recession is over or will be in the coming months.

Dailami said that the financial crisis has hit particularly hard emerging economies investments, most of which comes from the developed countries, the first to suffer the impact of the world “crack”.

He said that recovery, which is forecasted to begin picking up in 2010, will springboard mainly from emerging economies which will provide over half to the 2% global expansion during the next two years.

“This will be particularly true for the thrust coming from China which will represent 33% of global growth during the next two years”, pointed out Dailami.

“The pattern of the current crisis is a V shaped recession, and not L shaped or double dip W, which would represent scenarios far more complicated”, said economist Hans Timmer.

He insisted western governments must continue with economic policies that promote growth perspectives in emerging countries, even when there is not an immediate domestic benefit, “because global growth also benefits their interests”.

Financial liquidity injected to world markets will also bring tension in the form of inflationary pressures “but not on the short term, but rather in two to three years”…

Regarding the US dollar and its role as the main international reserve currency, Dailami and Timmer consider the greenback will not be replaced, as has been suggested by different sources in the last few years.

“We expect a gradual debilitating process for the US dollar, both in value and in its role as the leading currency” but nothing shocking said the two World Bank economists.