BRUSSELS: The global economy will likely shrink by 1% to 2% in 2009, World Bank President Robert Zoellick said. International organizations should be prepared to monitor economic stimulus actions being taken across the world to see if more will be needed, he said.
"I think 2009 is going to be a very dangerous year," Mr. Zoellick said, speaking at an event hosted by the German Marshall Fund in Brussels. The global economic downturn brings with it the threat of political instability, Mr. Zoellick said. Moreover, legislatures are becoming more skeptical of proposals by government leaders to spend billions stimulating the economy and shoring up banks, he said.
"On the one hand, it has to be done," he said. "On the other hand, it''s a tough political sell." Many of the economic rescue efforts under way across the world fall off in 2010, meaning that international organizations such as the International Monetary Fund and the World Bank should monitor these stimulus packages to determine if more will be needed.
"I think we need to have a review process to see if more is needed in 2010," Mr. Zoellick said. Governments have been flooding the financial system with liquidity, over the past eight months. Some policy makers and economists fear these actions could lead to inflation.
Mr. Zoellick said the challenge for governments will be to withdraw this liquidity from the financial system, once economic growth returns, to prevent inflation. "Will they withdraw liquidity at the appropriate point?" he said. "You do need to show some path back to fiscal discipline," he added.