World Bank warns of deflation spiral

Justin Lin, the bank’s chief economist, said factories running idle around world threaten to trap economies in a vicious cycle, risking further spasms of financial stress, requiring yet more rescue packages.

"Significant excess capacity has been built up and unless this issue is addressed, we will face a deflationary spiral and the crisis will become protracted," he told an audience in Cape Town.

Mr Lin said capacity use had fallen to 72pc in Germany, 69pc in the US, 65pc in Japan, and as low as 50pc in some developing countries, mostly touching lows not seen in modern times. (more)