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Reflections on the World Bank Presentation

The Next Phase of Global Recovery

8 October 2009

Alison Curtis, Intern - At the World Bank’s presentation on “The Next Phase of Global Recovery,” Hans Timmer, Director of the Development Prospects Group, took a stance on the current global financial crisis that I have never heard before.  He claimed that despite most of the world’s belief, The United States was not the cause of the crisis, and that the downfall of the US economy at the same time of the downfall of the global economy was just a coincidence.  He stated that the world market does not depend on the US and that the American financial crisis originated in 2007 with the unwinding of the housing bubble. Timmer instead attributed the global crisis to the financial sector.  He said that “investors stopped investing and consumers stopped consuming, especially in developing countries.  Businesses in developing countries stopped producing, and only sold what they had. Consequently inventories continued to decrease, which is never good for the economy.”  

On a positive note, he stated that the acute phase of the crisis is over, and production and trade growth is positive again.  He believes that there has been much more rebound in the government sector than the private sector. Timmer explained that developing countries have a positive growth rate and are leading the cycle, but that the global rebound in led by emerging Asia.  Asian countries are being propelled by the inventory cycle and counter-cyclical policies, which is important to consider because their rebound will only last a couple of quarters, and not years like many predict. He pointed out hopeful news that there has been stabilization and rebound in the stock markets and there has been activity in the bond market. However, he mentions that there has not been any improvement in bank lending, which is bad for the vulnerable countries because they don’t have access to bond markets.  He also mentioned that industrial production is still low. 

Timmer stressed the importance on focusing on low-income countries, as they can’t afford fiscal stimulus and do not have the financial resources to rebound. In response to the job crisis, he made another surprising statement that the US is one of the few countries on the right path for employment. This is because of their focus on innovation and the green industry, and that the creation of industries is the solution to the creation of quality jobs. While Timmer made some very interesting points and show-cased a view on the financial crisis I have yet heard, he echoed what has been said by representatives of international organizations from all over the world, that the key to recovery is institutional and domestic reforms and the opportunity to trade with other countries is very important for growth.

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