The World Bank predicted that the global economy will shrink this year for the first time since World War II, the worst forecast to be published as of yet.
According to the report developing countries face a financial shortfall of $270-700 billion this year, as private sector creditor shun emerging markets, and only one quarter of the most vulnerable countries have the resources to prevent a rise in poverty.
“We need to react in real time to a growing crisis that is hurting people in developing countries,” said World Bank Group President Robert B. Zoellick. “This global crisis needs a global solution and preventing an economic catastrophe in developing countries is important for global efforts to overcome this crisis. We need investments in safety nets, infrastructure, and small and medium size companies to create jobs and to avoid social and political unrest.”
The global economy is likely to shrink this year for the first time since World War Two, with growth at least 5 percentage points below potential. World Bank forecasts show that global industrial production by the middle of 2009 could be as much as 15 percent lower than levels in 2008. World trade is on track in 2009 to record its largest decline in 80 years, with the sharpest losses in East Asia.
The financial crisis will have long-term implications for developing countries. Debt issuance by high-income countries is set to increase dramatically, crowding out many developing country borrowers, both private and public. Many institutions that have provided financial intermediation for developing country clients have virtually disappeared. Developing countries that can still access financial markets face higher borrowing costs, and lower capital flows, leading to weaker investment and slower growth in the future.
Image by kwl under Creative Commons.
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