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World Bank: global economy will shrink for first time on record

The World Bank’s crystal ball is not emitting pleasant forecasts this morning, with the release of the latest Global Economic Prospects Report: “Global GDP is expected to contract by 1.7 percent in 2009, which would be the first decline in world output on record,” the report concludes. Developed economies will fall into “deep recession” — ...

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LONDON, ENGLAND - MARCH 31: A man protests about capitalism outside The Bank of England on March 31, 2009 in London, England. Security measures are being tightened around the centre in preparation for the G20 leaders' summit which begins on Wednesday April 2, and will host leaders from around the world with plans to discuss measures aimed at tackling the current global economic downturn. (Photo by Dan Kitwood/Getty Images)

The World Bank’s crystal ball is not emitting pleasant forecasts this morning, with the release of the latest Global Economic Prospects Report: “Global GDP is expected to contract by 1.7 percent in 2009, which would be the first decline in world output on record,” the report concludes. Developed economies will fall into “deep recession” — witness Japan’s 12.1 percent drop in GDP in the 4th quarter of 2008, or worse still, 21 and 25 percent drops in South Korea and Japan respectively. Ouch.

By region, Eastern Europe and Central Asia are worst off thanks to their coming into the crisis with deficits and a binge of foreign cash (which, as you guessed, has now fled.) Latin America will suffer; so will Africa as commodity prices will stay low, trade slows, and foreign investment dries up. East Asia will be hit by the 6.1 percent gutting of global trade expected in 2009. 84 of 109 developing countries are expected to face “financing gaps” in their government budgets this year. 

The good news? A modest recovery might be coming in 2010…”However, continued banking problems or even new waves of tension in financial markets could lead to stagnation in global GDP or even to another year of decline in 2010.”

Whisky anyone?

Dan Kitwood/Getty Images

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