What is going on?
We noted on June 12 that the World Bank has lowered its growth forecast for 2009 from a negative 1.7% to close to negative 3%. World Bank Group President announced this prior to the G8 meeting and stressed the global contraction would have particularly grim consequences for poor countries.
Today we have this Bloomberg headline, “Stocks, Copper Retreat on World Bank Forecast; Dollar, Yen Rise“:
Stocks and commodities fell while the yen, the dollar and Treasuries rose after the World Bank said the global economy will
shrink 2.9 percent this year, a deeper recession than it predicted in March.
The Dow Jones Stoxx 600 Index of European shares slid 1.3 percent at 1:20 p.m. in London, while Standard & Poor’s 500 Index futures slipped 0.9 percent. The yen strengthened 0.9 percent against the euro and the dollar rose 0.6 percent. The yield on the benchmark 10-year Treasury dropped six basis points to 3.72 percent.
A flight of capital from developing nations will increase the numbers of the poor and the unemployed, the Washington-based World Bank said in a report today. The projection for a deeper slump than the 1.7 percent contraction forecast in March follows a three-month, 44 percent rally that drove the price-earnings ratio on the MSCI World Index to the highest level in four years.
“The green-shoots story is largely priced in,” Lena Komileva, an economist in London at Tullett Prebon Plc, wrote in a note today. “Judging by the general commentary in recent days focus has started to shift from the overall positive direction of the economic surveys,” she said. That’s “consistent with weak demand, pressured producer profit margins, high unemployment and weaker labor wages,” Komileva wrote…
The World Bank said that while a global recovery may begin this year, impoverished economies will lag behind rich nations. Global growth will be 2 percent next year, down from a 2.3 percent prediction in March, the bank said.
We did note at the time that it was puzzling that the media took so little note of the marked change in the World Bank forecast, since it is usually an above-the-fold news item. And looking at the World Bank site, I do not see a new press release (the older one was dated June 11).
As of this writing, the DAX is down 1.9%, the Footsie is down 1.5% and the CAC is down 2.0%. S&P 500 futures down 9.7 points.
This is probably just the usual “markets will fluctuate” story with Bloomberg searching for explanations, but this one is quite a stretch.