NY Times, March 9, 2009 World Bank Says Global Economy Will Shrink in ’09 By EDMUND L. ANDREWS
WASHINGTON — The economic crisis that started with junk mortgages in the United States is causing havoc for poorer countries around the world, not only stifling their growth but choking off their access to credit as well, the World Bank said on Sunday.
In a bleaker assessment than those of most private forecasters, the World Bank also predicted that the global economy would shrink in 2009 for the first time since World War II. The bank did not provide a specific estimate, but bank officials said its economists would be publishing one in the next several weeks.
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 its rural population.
The World Bank also warned that global trade would shrink for the first time since 1982, and that the decline would be the biggest since the 1930s.
The report, released on Sunday, was prepared for a meeting next week of finance ministers from the 20 industrialized and large developing countries. It warned that the financial disruptions are all but certain to overwhelm the ability of institutions like itself and the International Monetary Fund to provide a buffer.
The bank, which provides low-cost lending for economic development projects in poorer countries, pleaded for wealthy governments to create a “vulnerability fund” and set aside a fraction of what they spend on stimulating their own economies for assisting other countries.
“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 B. Zoellick, the World Bank’s 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 that developing countries, many of which had been growing rapidly in recent years, are being devastated by plunging exports, falling commodity prices, declining foreign investment and vanishing credit.
The impact of the global slowdown varies widely among countries, and the drop in prices for oil and other commodities has created both winners and losers, But as a whole, the bank said, the so-called emerging-market countries face a combined financing gap of at least $270 billion and as much as $700 billion over the next year or two.
The report detailed the variety of ways in which the global slowdown has 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 American mortgages and mortgage-backed securities.
East Asian countries are reeling from plunging global trade. Demand for cheap manufactured goods has plunged in the United States. That slump has hit many Asian countries both directly and indirectly, through plunging demand by China for raw materials and component products.
Lower commodity prices have caused great problems in many African and Latin American countries. The plunge in oil prices — 69 percent from July to December of 2008 — has boosted growth in poorer oil-importing countries but 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.
Under the “vulnerability fund” proposal, rich countries would set aside 0.7 percent of the money they spend to stimulate their own economies to help stabilize poorer countries.
Mr. Zoellick said the fund could then make the money available to countries through the World Bank, the United Nations or other international financial institutions like the International Monetary Fund.
He said the World Bank has the potential to triple its own lending in 2009 to $35 billion, even though that would still be a small fraction of even the most optimistic estimate on the shortfall facing poor countries.
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