WB marks global growth down ahead of G20 summit
The World Bank has sharply cut its November 2008 forecast of 4.4 percent GDP growth in the developing world in 2009 to 2.1 percent, as heads of governments convene in London for the G-20 summit today.
"There may be a weak recovery in 2010. However, the pace and timing of recovery remain highly uncertain," the WB says in its Global Economic Prospects update.
Rich countries across the world are in simultaneous recession, with their output falling sharply in the last quarter of 2008. Of the 16 developing countries that have quarterly data available, 15 have shown a fourth-quarter GDP decline.
Global GDP growth, after a robust eight-year stretch, is now set to contract by 1.7 percent this year, the World Bank predicts. This is a historic contraction, with world output set to decline for the first time since World War II.
“Even if global growth turns positive again in 2010, we are not yet out of the woods,” said Hans Timmer, manager of Global Trends in the World Bank's Development Prospects Group. “We expect that the level of GDP will remain well below potential, and so economic distress will remain acute for the next two years.”
Timmer explained that the global economy was going through “a perfect storm,” with the global recession, the credit crunch, and languishing confidence working together in a "very negative dynamic".
The investment banking collapse last year and the ensuing credit crunch were followed by a sharp decline in industrial production across the world, especially in economies specialising in investment goods, such as Taiwan, China and Japan.
The crisis was preceded by eight years of extraordinary economic growth in developing countries, supported by double-digit growth in investments. Investments are especially hard hit now by the tough financial conditions.
The World Bank now expects a 6.1 percent contraction in 2009 in the volume of world trade in goods and services. The value of world trade will collapse much more because of the fall in commodity prices, it says.
This is bad news for government revenues. It is the poorest countries that depend most on trade for their fiscal revenues. For example, in Lesotho, Swaziland and Cote d'Ivoire, between 40 and 50 percent of fiscal revenues come from trade.
World GDP growth is likely to increase to 2.3 percent in 2010, but significant risks could mar this outlook, according to the WB. "If crises in balance of payments are not prevented, much sharper contractions would occur in 2009, possibly continuing into 2010," it says.
Europe and Central Asia have been worst-affected by recent developments. GDP in the region is expected to fall by 2 percent in 2009, compared with a 4.2 percent increase in 2008.
Latin America and the Caribbean will also likely see GDP contract in 2009, although at the country level outturns may be diverse. Overall, GDP is projected to decline 0.6 percent following gains of 4.3 percent in 2008.
East Asia and the Pacific are likely to be most affected by the falloff in global investment and trade. Already this has cut sharply into industrial production and capital spending. GDP growth is expected to ease to 5.3 percent in 2009, as growth in China slumps to 6.5 percent, and several smaller economies in the region, including Thailand fall into recession, the WB says.