The World Bank has finally come out and said what I’ve been saying to my readers for weeks: Europe is most likely already in a recession.
The World Bank has chimed in with their latest semi annual forecast for world economic growth. They are calling for a 0.3% contraction of GDP growth for the 17 members of the eurozone in 2012 (recession).
The institute is convinced that the U.S. will not be able to escape the global economic slowdown (which I’ve been warning my readers about as well) and, as a consequence, cut America’s growth rate down to 2.2% from 2.9% for 2012. I personally believe that even 2.2% is going to be out of reach!
The biggest downside risks to its forecast are the evolving sovereign debt crisis in the eurozone, which will accelerate the economic slowdown, and the tensions in the Middle East, which could result in a spike in oil prices, destroying any hope of escaping a recession.
The reason for the biggest downward revision in the World Bank’s growth forecast in three years is plain and simple: the eurozone. The World Bank sees the eurozone recession causing an economic slowdown in the developing nations that trade with it—China, Brazil, and India—and this is in turn affecting countries like Japan and the U.S. I’ve been warning my readers that this is already happening.
No country was spared from a cut in GDP growth rates in light of the global economic slowdown. Aside from the eurozone, the largest engines of growth,China and India, were also cut significantly. For 2012, the World Bank estimates growth of 8.4% for China (which would be China’s slowest growth rate in a decade) and has India penciled in at 6.5%, down from 8.4%.
Due to the debt crisis in the eurozone, the Institute also cites the possibility of a global freezing-up of the markets causing a global crisis similar to what took place in 2008, which would plunge much of the world into a recession.
I’ve been warning readers that in this precarious environment, one event—like the failure of a large eurozone bank—will result in a chain-reaction that will freeze up the system. I don’t usually quote the forecasts of other think-tanks, but I find that the World Bank has been a quite reliable economic predictor over the past few years.
The world is littered with land mines of too much debt and banks that are teetering on a cliff thanks to a customer confidence crisis, especially in the eurozone. Couple this with an economic slowdown, which depresses bank and government revenue, and we’ll easily see financial pressures building.
Where the Market Stands; Where it’s Headed:
Little by little, the Dow Jones Industrial Average inches towards the 13,000 level. We experienced multiple days of minor advance by the world’s most watched stock market index, with the Dow Jones Industrial Average now up 3.3% for 2012 so far.
This bear market rally is doing an excellent job of luring investors back into the stock market. Positive economic news over the next couple of months will add credence to the belief that the economy has turned around. It will be exactly at that point that the bear will take the chips off the table again.
What He Said:
“Home-building in the U.S. will enter a quasi depression state in 2008 and the construction industry will make 2008 a record year for pink slips. I predict a major home builder will go bankrupt in 2008.” Michael Lombardi in PROFIT CONFIDENTIAL, January 10, 2008. WCI Communities, the largest U.S. luxury home builder at that time, filed for Chapter 11 protection on August 4, 2008.