The worst of the financial crisis is over, but the global economic recovery under way is fragile and will slow in the second half of 2010 as the impact of fiscal stimulus wanes, according to the latest Global Economic Prospects 2010 report from The World Bank. Financial markets remain troubled and private sector demand lags amid high unemployment. The report predicts that the fallout from the crisis will change the landscape for finance and growth over the next 10 years. It warns that, despite the return to positive growth, it will take several years before economies recoup the losses already endured.

The forecast for recovery is premised on a revival in global oil demand, stabilising oil prices and a rebound in key export markets. Despite a gradual withdrawal of fiscal stimulus measures, moderate advances in consumer and capital spending are expected to underpin firmer growth.

According to the World Bank Poland’s GDP is expected to grow 2.2% this year and 3.4% in 2011. “Poland has relatively strong fundamentals and managed to overcome the global crisis. Poland is one of the few countries in Europe and Central Asia region that managed to get through the recession without going into negative growth, that is an enormous achievement,” said Andrew Burns, lead author of the report.

The report also noted that Poland’s good performance reflects comparatively resilient service and agricultural sectors, compared with industrial output, which fell by 9% in the first half of 2009 over the first half of 2008. Exports were also relatively resilient, and as a result, net exports contributed positively to growth.

“It doesn’t mean however that Poland will not be affected by the working of global conditions, export demand will be a lot weaker, the banking system which has been one factor in Poland’s success is not going to be capable of supporting growth to the extent it was in the past. Those are some of the reasons why we expect growth in the next couple of years to be less quick than it has perhaps been in the last 5 years or so,” said Andrew Burns.

Given the region’s overleveraged private sector, weakness in the banking sector and household indebtedness in developing Europe, the recovery in domestic demand is expected to be muted tn that region. Foreign direct investment and credit inflows are expected to remain significantly lower than the levels observed before the crisis, the World Bank said in the report.

Andrew Burns said that one of the big challenges facing developing and high income countries is how to withdraw the fiscal and monetary stimuli that have been put into the global economy without killing the recovery.

The report finds that very relaxed international financial conditions from 2003 through

2007 contributed to the boom in developing country finance and growth. Much lower borrowing costs caused both international capital flows and domestic bank lending to expand, which contributed to a 30 % increase in investment rates in developing countries. The resulting rapid expansion of the capital stock explained more than half of the 1.5 % increase in the rate of growth of potential output among developing countries. While very strong developing country growth during the boom period may reflect underlying growth potential, the global financial conditions that fueled it were clearly unsustainable.

While resurgent demand in parts of Europe and Asia, combined with stable and/or modestly rising commodity prices, should support a turnaround in the region’s exports, the projected weak recovery for developed Europe will result in relatively muted overall export growth. Similarly, foreign direct investment, which correlates strongly with trade activity and credit inflows, is expected to remain significantly lower than the levels observed before the crisis.

The World Bank predicts that any recovery is expected to be long, slow and marked by a rise in poverty. The region’s dependence on selling goods to its trading partners in Western Europe may restrain the expansion because the projected weak recovery for developed Europe will hold back export growth.