The World Bank hasreleased a dismal economic forecast for 2009, as G20 leaders prepare to meetthis week in London (4/1-2) on the global recession. The Global EconomicProspects report looks at the regions that have been hit the hardest.
World Bank SeniorEconomist Mick Riordan says it's been a long time since the forecast for growthwas so pessimistic.
"For the first timereally since World War Two, we expect to see a decline in global GDP (GrossDomestic Product). That is the output of all industrial countries, as well asdeveloping countries, and that decline is between one and two percent. So,really this is an unprecedented development for this year. We hopefully will belooking at a gradual recovery into 2010, but there's quite a bit of uncertaintyabout those figures. And for the moment we're concentrating on getting throughthis year," he says.
Riordan outlineswhich regions are most affected by the economic decline.
"The regions thathave been hardest hit and who are actually going into recession themselvesinclude Europe and Central Asia. That's effectively Central and Eastern Europeand Russia and the current CSIS (former Soviet) republics and Latin America,"he says.
Russia is sufferingfrom a sharp drop in oil prices, dealing a major blow to its economy. The priceof oil is just one of the problems affecting Latin American countries.
"The overall changein commodity prices ? where we went from the boom in grains?and oil prices,which was generally beneficial to the region. That's turned aroundsubstantially and now this is a hurting factor for the region. At the sametime, you have many countries that are tightly linked with the United States,be it Mexico and their auto production, for example, linked to US production.And that's going downhill quite quickly," says Riordan.
However,sub-Saharan African countries overall are fairing a bit better.
"Sub-Saharan Africais among those regions least hit by the financial aspects of the crisis. Andthat is generally because sub-Saharan Africa, with a few exceptions, be itSouth Africa and Nigeria, are not very tightly linked into the global capitalmarkets. They are, however, very much dependent on foreign direct investment ? andthat's been picking up quite substantially over the last years ? and uponremittances," he says.
But remittances aresharply lower and much of the continent will see slower growth this yearcompared to last.
"Growth in thesub-continent was almost five percent in 2008 and that's quite a strong story.That growth is halved to two-point-four percent this year we anticipate, withparticularly hard hit being South Africa, down to a growth of aboutone-percent; Nigeria, from six-point-one (percent) to something likethree-percent, given the decline in oil prices; and Kenya and some other largecountries as well," he says.
The World Bankreport takes a cautious approach in predicting a weak economic upturn nextyear.
"There are a numberof moderately encouraging signs on the horizon. Statements by the (US) Treasuryand some of the actions by Federal Reserve have received good market responseto date. The equity markets are starting to firm up, which is a positive.Again, it's very short term. But we're also seeing some lights at the end ofthe tunnel, which we hope is not the locomotive coming at us, in terms of USspending orders and so forth. But we still have a long, long way to go," saysRiordan.
That's because ofsuch things as continued falling industrial and manufacturing production, down50 percent in Japan, 20 percent in the United States and 15 percent in thedeveloping world. The report says even if there's a slow rebound in 2010, "economicactivity will remain depressed with disinflation and unemployment over the nexttwo years."
"We hope that inthe process of this G20 meeting that we get some more coordinated policies,possibly on the fiscal stimulus, or clearly on the financial reform side. And thatthese policies are effective in reducing uncertainty, which is another major factorin the financial markets," he says.
The World Banksenior economist says a positive outcome of the G20 meeting would be seeingsome confidence restored and signs the financial markets are moving up once again.