World growth shrinking in the face of credit crisis

Dubai: World GDP growth is expected to decline 64 per cent to 0.9 per cent next year from 2.5 per cent this year, said the World Bank's latest report, Global Economic Prospects, a copy of which was obtained by Gulf News.

"The world financial crisis has dimmed short-term prospects for developing countries and the volume of world trade is likely to contract for the first time since 1982. The sharp slowdown has caused commodity prices to plummet..." it said.

The report finds the global economy transitioning from a long period of strong developing-country led growth to one of uncertainty as the financial crisis shakes markets worldwide.

Developing countries will likely grow by 4.5 per cent next year, down from 7.9 per cent in 2007, while growth in high-income countries will turn negative, the World Bank said.

With world trade volumes projected to contract 2.1 per cent in 2009, developing countries will see a big drop in their exports.

"Tighter credit conditions and increased uncertainty are expected to see investment growth in both developing and high-income countries slow in 2009 - actually falling 1.3 per cent in developed countries and rising by only 3.5 per cent in developing countries versus 13 per cent in 2007," it said.

"Policymakers in developing countries should monitor their banking sectors carefully and be prepared to enlist external support to shore up currencies and banking systems."

Uri Dadush, director of the World Bank's Development Prospects Group, said, "Given the expected decline in global trade, both developed and developing countries need to resist the temptation to resort to protectionism, which would only prolong and deepen the crisis."

The collapse in global growth reversed the surge in commodity prices that characterised the first half of the year, with prices of virtually all commodities falling sharply since July.

While real food and fuel prices in developing countries have dropped considerably, they remain high relative to the 1990s and the social turmoil and human crises they triggered are still reverberating, it said.

"Overall, higher food and fuel prices have cost consumers in developing countries about $680 billion (Dh2.5 trillion) in extra spending in 2008 and pushed an additional 130,155 million people into poverty," the report said.

With world trade volumes projected to contract 2.1 per cent in 2009, developing countries will see a big drop in exports.

Tighter credit conditions and increased uncertainty are expected to see investment growth in both developing and high-income countries slow in 2009 falling 1.3 per cent in developed countries and rising by only 3.5 per cent in developing countries versus 13 per cent in 2007.