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.