WASHINGTON - This year, for the first time since the Great Depression, global
economic production will decline, according to the latest estimates by the
World Bank, which also predicted a tough and uncertain 2010.
Most of this year's negative growth will take place in the world's
industrialized nations, whose gross domestic product (GDP) is expected to fall
3%, according to the bank's latest edition of "Global Economic Prospects" (GEP)
released on Tuesday.
Developing countries will also be hit hard, with their overall growth rate
falling to just over 2% in 2009 from nearly 6% last year.
If India and China, where 2009 growth rates are projected at 6.5% and 4.0%, are
excluded from the analysis, per capita growth in
the developing world will actually decline, according to the GEP. Globally, an
estimated 53 million more people would be forced to subsist on less than the
equivalent of US$1.25 a day due to the crisis, the bank said.
"In London, Washington, and Paris, people talk of bonuses or no bonuses [for
corporate executives]," declared bank president and former US trade
representative Robert Zoellick at a press event in London that coincided with
release of the bank's GEP report. "In parts of Africa, South Asia, and Latin
America, the struggle is for food or no food."
Zoellick, speaking on the eve of the Group of 20 Summit in London, called for
the leaders who will assemble in the British capital on Thursday to allocate
0.7% of the stimulus packages they adopt to deal with the current financial
crisis to a "vulnerability fund" for developing countries to help cushion the
impact of the crisis on those nations that are least able to cope.
He also called for the G-20 to endorse the creation of a $50 billion "global
trade liquidity program", an international effort to coax private banks as well
as public entities to provide more credit for trade with and between developing
countries at a time when many governments are adopting protectionist measures.
"G-20 backing will help us gain more momentum, thereby increasing support," he
said.
His appeal echoed in part a communique released on Monday by the Group of 24
(G-24), which represents the views of developing-country finance ministers and
central bankers on the governing boards of the International Monetary Fund
(IMF) and the bank.
"We remain extremely concerned by the threat of protectionism, especially the
increased recourse to subsidies, and call on G-20 leaders to strongly resist
protectionist measures in trade, investment, finance, and labor services," they
said. They also welcomed recent steps by the IMF to increase its lending under
less-stringent conditions and called for the bank to follow suit.
The latest GEP report is considerably more pessimistic and uncertain than the
previous edition, released last November, which predicted a 4.4% growth rate
for all developing countries in 2009. That the bank now thinks the actual rate
will be less than half of its November estimate testifies to the speed with
which the financial crisis, which exploded with the mid-September collapse of
the Lehman Brothers investment bank in New York City, has reverberated both
geographically and into the real economy.
"The financial crisis is having dramatic, instantaneous effects on production
and trade in virtually every country," said Hans Timmer, who directs heads the
Global Trends division of the Bank's Development Prospects Group.
Global industrial production has already fallen 15% since the onset of the
crisis, while trade in goods and services is expected to fall 6.1% in 2009,
according to Timmer, who called both declines "unprecedented" since World War
II.
While economies specialized in capital goods production - notably Japan,
Germany and Taiwan, among others - have been especially hard hit, countries
whose economies are dependent on commodity exports, which include many of
world's poorest nations, have also suffered significantly and are unlikely to
recover quickly.
The price of oil is likely to remain at more than 50% of 2008 levels -
averaging around $47 per barrel - through 2009, while the decline in non-oil
commodity prices is projected at more than 30% compared last year.
Economic contraction among developing countries will be particularly severe in
Europe and Central Asia, where growth rates are projected to fall from 4.2%
last year to minus 2% in 2009. Latin America and the Caribbean may contract
0.6% this year - after growing 4.2% in 2008 - with Mexico (minus 2%) and
Argentina (minus 1.9%) among the worst affected, according to the report.
By contrast, the Middle East and North Africa will be the least affected by the
downturn, dropping just 0.3 percentage points from earlier projects of 3.3%
growth in 2009.
In Sub-Saharan Africa, GDP growth this year is expected to halve from nearly 5%
in 2008 to 2.4%, which will not keep pace with population growth. "If the
global economy continues to deteriorate, the pressure on African countries is
going to be huge," said Justin Yifu Lin, the bank's chief economist and senior
vice president for development economics.
The report projected that the global economy will return to positive growth of
2.3% in 2010, but Lin stressed that such a recovery remained "uncertain" and
that, in any event, the knock-on effects of the crisis are likely to be felt at
least through next year.
"Even if global growth turns positive again in 2010, output levels will remain
depressed, fiscal pressures will mount, and unemployment levels will rise
further in virtually every country well into 2011," Timmer said. "This is
actually a very weak recovery given the depth of the fall in 2009," he added.
The decline in trade and commodity prices, as well as the sharp decline in
foreign private investment in the developing world, will translate into major
fiscal challenges for many developing-country governments which, in the absence
of international support through the proposed vulnerability fund and other
instruments, will have little choice but to slash their already cash-strapped
budgets, according to Timmer.
In a report released earlier this month, the bank warned that developing
countries will face a financing gap of between $270 billion and $700 billion as
a result of the current credit squeeze.
If those kinds of resources are forthcoming, said Lin, they should be used for
three major purposes - strengthening safety nets for the most vulnerable
populations; investing in infrastructure to eliminate bottlenecks in getting
goods to market; and helping small and medium-sized businesses, which are often
the biggest source of jobs in developing economies.
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