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World Bank warns of protracted economic recovery

The fallout from the global economic financial crisis will change the landscape for finance and growth over the next 10 years, according to a report from the World Bank.

In its Global Economic Prospects 2010 report, the World Bank predicts that global GDP, which fell by 2.2 per cent in 2009, will grow by 2.7 per cent in 2010 and 3.2 per cent in 2011.

However, despite this return to positive growth, the World Bank warns it will take several years to recoup the losses they made during the crisis.

It estimates that about 64m more people will be living in extreme poverty – less than $1.25 a day – in 2010 than there would have been if the crisis had not occurred.

The main drag on global growth, says the World Bank, comes from high-income countries, whose economies are expected to have contracted by 3.2 per cent in 2009.

However, the prospects for the developing economies is more robust, with the World Bank forecasting 5.2 per cent GDP growth in 2010 and 5.8 per cent growth in 2011, up from the 1.2 per cent growth recorded in 2009.

It predicts China’s growth of 8.4 per cent in 2009 will continue this year with the economy predicted to grow 9 per cent. However, it adds continuing excess capacity and only moderate advances in world trade growth will restrain GDP growth from growing beyond 8.2 per cent in 2011.

Andrew Burns, the head of macroeconomic research at the World Bank, said he could see signs of a bubble emerging in China. He said China’s low interest rates and “the particular nature” of its fiscal stimulus is “putting strains on the economy and forcing the government to step back”

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