Worst may be yet to come - ex World Bank chief

The former president of the World Bank has admitted that the worst of the global economic crisis may still be to come.

“It just doesn’t feel to me yet that we’re through this crisis,” Wolfensohn told Arabian Business in an interview. “I don’t think we’ve seen the worst.

“This downturn is the most serious I’ve seen in my working lifetime, which is over 50 years,” he said. “Certainly China and India seem to be getting through this at the moment because of some exports but a significant domestic market. So that’s 40 percent of the population of the world.

“But when you come to that portion of the world which is responsible for some 75 percent of global GDP, and you look broadly at the US and then Europe, the situation is very difficult.”

Wolfensohn also warned that the global economy faces a long, steep road to recovery – and that he fears the economic stimulus packages introduced in the US by the Obama administration may not be enough to re-stimulate the world’s largest economy.

“My judgment is that this is not a downturn that will have a v-shaped recovery, or even a u-shaped recovery. It’s more likely to be a long, slow grind out of it,” he said.

“We’re not seeing the stimulus packages having the effect that you’d hope, because people are saving,” Wolfensohn added.

“In the US the stimulus that came out was used 80 percent to pay off credit card debt and for savings; 20 percent was spent. We’re in a different world in terms of the reaction to stimulus, and we’re in a different world because the US, for the last few years, thought that you could borrow forever.”

Wolfensohn’s warning comes amid claims that ‘green shoots’ of recovery are beginning to emerge around the world. In the UK, the National Institute for Economic and Social Research (NIESR) on Thursday said the economy expanded in April and May, putting it on track to return to growth in the second quarter of 2009, six months ahead of the schedule mapped out by Britain’s chancellor in his budget speech in April.

And in the Gulf, in its latest report on the property market, HSBC reported prices in Dubai rising four per cent in April compared to the previous month and another five per cent in May. The price of flats, which account for 85 per cent of transactions, rose by nine per cent last month, it said.

Wolfensohn was speaking at the second annual Silatech summit in his capacity as founder of the Wolfensohn Center for Development at the Brookings Institution, Washington DC.

Silatech is a Qatar-based initiative that aims to improve the social and economic status of young people in the Arab world, particularly with regards to tackling youth unemployment.

It is spearheaded by Her Highness Sheikha Mozah bint Nasser Al-Missned, wife of the Emir of Qatar, Sheikh Hamad bin Khalifa Al Thani.

Read the full interview in Sunday's edition of Arabian Business magazine.

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