ID :
67022
Mon, 06/22/2009 - 12:15
Auther :

Yonhap Interview) With financial system still fragile, subdued economic rebound

((ATTN: photo available)
By Koh Byung-joon
SEOUL, Jan. 22 (Yonhap) -- The global economy will likely rebound next year, but
the recovery will be weak as the financial system remains "fragile," a senior
official at the World Bank said Monday, calling for measures to strengthen the
system and stimulate slumping demand.

The assessment and policy suggestion came as the Washington-based organization
unveiled its latest projection for the global economy, in which it expected
worldwide gross domestic product to fall by 2.9 percent this year before a modest
recovery to growth of 2 percent in 2010 and 3.2 percent in 2011.
The projection for this year is slightly higher than a 3 percent contraction
predicted by the World Bank on June 12. It did not unveil its 2010 and 2011
outlooks for the global economy at that time.
"We anticipate a subdued recovery because the current synchronized recessions
come in the wake of a massive banking crisis. Banking crises tend to be deeper
and longer-lasting than crises limited to the equity market or housing market
alone," Justin Yifu Lin, World Bank chief economist and senior vice president,
told Yonhap News Agency.
"And the malaise we face today is worldwide. A global crisis precludes the more
typical scenario where recovery from a regional or country-specific slump is at
least partly achieved by exporting to healthier and more rapidly growing
countries," added Lin, the first World Bank chief economist from a developing
country, China.
The global economy was hard-hit by the financial turbulence that started last
summer when U.S. investment giant Lehman Brothers collapsed amid deepening
subprime mortgage problems. Stock markets tumbled, currencies fluctuated and
money flows froze, sending economies not only in advanced countries but also in
emerging ones into turmoil.
The worldwide turbulence prompted many countries to join hands in expanding
fiscal spending and implementing other stimulus measures, in an attempt to
stabilize the financial system and ease what has become the worst economic
downturn in decades.
Now, budding signs are being detected in some areas that the worst might be over,
but Lin said there are still many worrying trends that cause the outlook to
remain uncertain.
"We are seeing encouraging signs on the financial side in the global market,
including the rebound in equity markets, a reduction in interest rate spreads,
and the issuance of sovereign and corporate debts, as well as some encouraging
indicators in trade and industrial production notably in East Asia," he said.
"However, uncertainty in the outlook remains...There is still a risk of a
second-round financial crisis and of medium-term stagnation. It is important to
take measures to strengthen the financial system, and to adopt coordinated fiscal
stimulus plans to increase demand," he added.
The main challenge that the world economy faces is the two-pronged tasks of
stabilizing not just the financial sector but also the real side of the economy,
said the vice president.
"In my view, the main challenge we face now is that we not only have to solve the
problems in the financial sector but also tackle those in the real sector --
specifically the issues related to large excess capacity," he said.
"Persistent capacity under-utilization in the real economy will result in a
downward deflationary pressure, deterioration of balance sheets in the financial
and corporate sectors, rising unemployment, and a higher risk of protracted
global recession and currency crises in some developing countries," he added.
Lin called for a "Keynesian type" of globally coordinated fiscal stimulus
measures, both by advanced and developing countries, to tackle the excess
capacity issue.
But he noted that the efforts should "go beyond the conventional Keynesianism of
shovel-ready projects by focusing on bottleneck-releasing projects and go beyond
national boundaries by supporting developing countries' stimulus efforts."
kokobj@yna.co.kr
(END)

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