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Global economy to shrink, says World Bank

Global economy to shrink, says World Bank

A report published by the World Bank says that the global economy will shrink for the first time since World War II.

March 9, 2009 2:08 by

In one of the most sobering reports published on the financial crisis yet, the World Bank forecasted that the world economy, including investment and trade, will shrink in 2009 for the first time since World War II.

The report, titled Global Economic Prospects 2009 and published on March 9, 2009, states the profits made over the past 24 months have been eradicated by the financial crisis.

The bank traces the beginnings of the global economic slowdown to the stresses in the financial and lending markets in the United States in the summer of 2007. By September 2008 the financial crisis had become global.

Credit stopped flowing, and where it did flow, it was – and still is – expensive, stock markets around the world crashed, and financial institutions were at risk of collapse.

The slowdown is expected to intensify in 2009 because of the “real-economy side effects” of the crisis in 2008, the bank said. Investments in high-income nations are expected to decline by 3.1, whereas investments in developing nations are expected to fall to 3.4 percent in 2009, a sharp decline from the 13 percent investment growth recorded in 2007.

The bank predicted the global GDP for 2009 to fall to 0.9 percent. This includes the expected growth of 4.5 percent for developing nations. Consequently, food prices are expected to fall by 23 percent, and oil prices are expected to reach $75 a barrel in 2009.

Consequently, developing nations, which were thriving in the first two quarters and 2007, will experience a marked decrease in growth in 2009 due to falling commodity prices, declining exports, a decrease in foreign investment and inaccessible credit. They face a combined financing shortfall between $270 billion and $700 billion over the next two years, the bank said.

The financial crisis is far from over, says the World Bank.

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