June 8, 2009 / 6:37 PM / 10 years ago

World Bank's Zoellick cautious on global outlook

WASHINGTON (Reuters) - There is still a high degree of uncertainty regarding the outlook for the global economy, although Chinese growth could surprise on the upside, World Bank President Robert Zoellick said on Tuesday.

Robert Zoellick, president, The World Bank Group, speaks at the International Economic Forum of the Americas conference in Montreal, June 8, 2009. REUTERS/Christinne Muschi

Speaking at the start of a two-day International Finance Corporation (IFC) conference on global private equity, Zoellick said views on the world economy’s health ranged from cautious optimism that the pace of decline was slowing to lingering concerns over low capacity utilization.

“China might surprise on the upside. It acted quickly and aggressively to stimulate demand. It has had some pretty good first numbers,” said Zoellick.

The latest survey of Chinese manufacturing released early this month showed the Purchasing Managers’s Index (PMI) rose to 50.1 in April from 44.8 in March, climbing above the key 50 mark for the first time since last July.

A key Chinese government think-tank has forecast the country’s annual economic growth rate accelerating to 7 percent in the second quarter from 6.1 percent in the first quarter.

Zoellick noted that much the spending in China was being driven by the government, adding that the question now was whether and when China’s private sector would complement the government’s efforts.

“We still face a high degree of uncertainty, but of course it will be a deadly mistake to let that uncertainty paralyze us. Our approach is to try and monitor the conditions very closely,” he said, noting that some governments and banks still have to clean up bad assets.

Governments, including in the United States and Britain, have injected billions of dollars into domestic banks to prevent them from collapsing after their capital base was severely damaged in the wake of the housing market crash.

“The recapitalization story is progressing reasonably well, but some banks will have to work through uncertain consumers, commercial real estate portfolios related to the housing market ... my guess is the credit from the banking sector will only expand gradually,” Zoellick said.

“The other challenge will be to reactivate the securitization market, which is especially important for a market like the U.S.,” he added.

Conditions in Central and Eastern Europe warranted particular attention, Zoellick noted, but added it was important to differentiate among countries.

He also cautioned countries against resorting to protectionism to address mounting unemployment, saying such a step could be devastating.

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