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Global economy to shrink 1.7%: World Bank

April 1, 2009

WASHINGTON (AFP) — The World Bank on Tuesday forecast “unprecedented” declines in global economic output and trade volumes this year, warning that growth would also slow sharply in the vulnerable developing world.

The World Bank said its latest projections show the global economy shrinking by 1.7 percent in 2009.

“This would be the first decline in world output since World War II,” the bank said.

The sharp contraction marks a dramatic 2.6 point downward revision of a projection from November last year, which saw 0.9 percent growth.

Developing countries have been hit harder than anticipated in the global economic crisis and lack the means to withstand the onslaught, the multilateral institution said in an outlook update released two days before a Group of 20 summit of developing and industrialized nations in London to coordinate a global response to the economic crisis.

World Bank president Robert Zoellick was quick to use the report as fresh ammunition to push for a new 50-billion-dollar trade liquidity fund to benefit the world’s poorest nations.

“G20 backing will help us gain more momentum, thereby increasing support,” Zoellick said in a speech Tuesday.

The World Bank chief has called on developed countries to donate 0.7 percent of their stimulus spending to the fund.

Gross domestic product (GDP) growth in developing countries is expected to slow to 2.1 percent from 5.8 percent in 2008, it said.

The World Bank more than halved its November projection of 4.4 percent growth in 2009, an update of its projections in its “Global Economic Prospects” report published in early December.

The World Bank forecast recessions in Europe and Central Asia (negative 2.0 percent), and Latin America and the Caribbean (negative 0.6 percent).

“The 2009 downturn in world GDP and trade is unprecedented,” the 185-nation development lender said.

The update “reflects the rapid deterioration in financial and economic conditions — and the increasingly negative interaction between weakening economies and fragile financial systems — that have come to the fore since late 2008 for virtually every country in the world.”

According to the latest GDP projections, high-income economies would shrink 2.9 percent this year, a notch more than the prior estimate of 2.8 percent.

Justin Lin, the World Bank’s chief economist and a senior vice president, said that China and India would continue to fuel growth in the developing world.

Lin told a news conference that developing countries excluding China and India would see “a decline in real incomes of 1.5 percent” because of their population growth.

“Across the developing world, we see that conditions of recession are affecting the poorest people, making them even more vulnerable than before to sudden shocks — but also reducing opportunities available to them, and frustrating their hopes,” Lin said.

“This could reverse years of progress” in the fight against poverty, he added, and “is nothing less than an emergency for development.”

The Washington-based bank projected trade volumes would drop a record 6.1 percent from 2008, led by a steep decline in manufactured goods trade.

“This is the largest contraction in 80 years, that is since the Great Depression,” Lin said.

Hans Timmer, manager of the bank’s Global Trends, Development Prospects group, said a key risk for developing countries was a balance of payments crisis.

“Developing countries are directly hit in their own economy because what came along with this crisis was a reversal of capital flows to the developing countries,” due mainly to a decline in private firms’ investments after rapid growth during the boom years.

The World Bank projected a financing gap for developing countries of up to 700 billion dollars. Eighty-four of 109 developing countries would face financing gaps, particularly in Europe and Central Asia, Latin America, and Sub-Saharan Africa.

The World Bank said a “modest” recovery in 2010 was possible but highly uncertain.

“Continued banking problems or even new waves of tension in financial markets could lead to stagnation in global GDP or even to another year of decline in 2010,” it said.


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