Rising food and oil prices biggest threat to recovery

8th June 2011

In its latest economic health check, the Washington-based World Bank said tougher economic policies and the jump in commodity prices would slow the pace of world growth this year before a pick-up in activity in 2012, the report says.

"Although solid growth led by developing countries is the most likely outcome going forward," the Bank said in its Global Economic Prospects, "high food prices, possible additional oil-price spikes, and lingering post-crisis difficulties in high-income countries pose downside risks."

The Bank predicted that global growth was on course to edge down from 3.8% in 2010 to 3.2% this year, then accelerate to 3.6% in 2012. It forecast that the pace of activity in high-income countries would slow from 2.7% in 2011 to 2.2% in 2012. Developing countries, which were responsible for almost half global growth in 2010, would expand by 6.3% this year, down from 7.3% in 2010.

However, the bank warned that its forecasts could be over-optimistic should oil prices soar.

A report in the Daily Telegraph says that the twice-yearly meeting of Opec in Vienna is set to be the most dramatic in a decade, as the 12-member cartel must decide whether to raise output and dampen prices for the first time in four years.

The group is under pressure from the International Energy Agency and Western governments to release more oil, with prices above $100 per barrel since unrest began in the Middle East late last year, says the report.

London's Brent crude price is now 25% higher than before the protests, trading above $115 per barrel and causing financial hardship for drivers.

Mort comments on the Daily Telegraph story: "Oil is already being rationed – with the price being controlled…"peak oil" is with us now… price rises and production downgrades of at least 3-5% per year from now on.

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