World Bank’s Bleak Economic Forecast

The World Bank has indicated that the world economy will continue to shrink in 2009, that world trade will shrink for the first time since 1982, and that the decline would be the largest since the 1930s.

Until now, even extremely pessimistic forecasters have predicted that the global economy would eke out a tiny expansion but had warned that even a growth rate of 5 percent in China would be a disastrous slowdown, given the enormous pressure there to create jobs for the country’s rural population.

The World Bank also warned that global trade would contract for the first time since 1982, and that the decline would be the biggest since the 1930s.

[…]

“This global crisis needs a global solution and preventing an economic catastrophe in developing countries is important for global efforts to overcome this crisis,” said Robert Zoellick, the World Bank president. “We need investments in safety nets, infrastructure, and small and medium-size companies to create jobs and to avoid social and political unrest.”

The bank said developing countries, many of which had been growing rapidly in recent years, were now being devastated by plunging exports, falling commodity prices, declining foreign investment and vanishing credit.

[…]

The report detailed the variety of ways in which the global slowdown had hammered poorer countries in Latin America, Central Europe, Asia and Africa.

Central European countries like Poland, Hungary and the Czech Republic are hurting from diminished exports to Western Europe as well as a severe credit crunch among major European banks, which have suffered huge losses on U.S. mortgages and mortgage-backed securities.

East Asian countries are reeling from plunging global trade. Demand for inexpensive manufactured goods has plunged in the United States. That slump has hit many Asian countries directly and indirectly, through falling demand by China for raw materials and component products.

Lower commodity prices have caused great problems in many African and Latin American countries. The steep slide in oil prices – 69 percent between July and December of 2008 – has spurred growth in poorer oil-importing countries but has caused immense difficulty in poorer oil-exporting countries.

Brazil, an exporter of oil as well as many other commodities and manufactured goods, reported its first trade deficit in eight years as exports dropped 28 percent in 2008.

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Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. odograph says:

    Martin Wolf has an interesting article up

    In the west, the pro-market ideology of the past three decades was a reaction to the perceived failure of the mixed-economy, Keynesian model of the 1950s, 1960s and 1970s. The move to the market was associated with the election of Reagan as US president in 1980 and the ascent to the British prime ministership of Margaret Thatcher the year before. Little less important was the role of Paul Volcker, then chairman of the Federal Reserve, in crushing inflation.

    Yet bigger events shaped this epoch: the shift of China from the plan to the market under Deng Xiaoping, the collapse of Soviet communism between 1989 and 1991 and the end of India’s inward-looking economic policies after 1991. The death of central planning, the end of the cold war and, above all, the entry of billions of new participants into the rapidly globalising world economy were the high points of this era.

    Today, with a huge global financial crisis and a synchronised slump in economic activity, the world is changing again. The financial system is the brain of the market economy. If it needs so expensive a rescue, what is left of Reagan’s dismissal of governments? If the financial system has failed, what remains of confidence in markets?

    It is impossible at such a turning point to know where we are going. In the chaotic 1970s, few guessed that the next epoch would see the taming of inflation, the unleashing of capitalism and the death of communism. What will happen now depends on choices unmade and shocks unknown. Yet the combination of a financial collapse with a huge recession, if not something worse, will surely change the world. The legitimacy of the market will weaken. The credibility of the US will be damaged. The authority of China will rise. Globalisation itself may founder. This is a time of upheaval.

  2. Dave Schuler says:

    The authority of China will rise. Globalisation itself may founder.

    I wonder how he reconciles those. Without globalization China will founder.

  3. odograph says:

    Internal consumption?

    It’s what economists in the west, and the east, have recommended, but it isn’t all gravy for the US.