World Bank predicts global gloom

The World Bank has forecast a significant decline in global economic growth in 2009 for both developed and emerging countries.

In a report assessing economic prospects, the Bank has predicted that the world's annual economic growth will slow to 0.9%, from 2.5% this year.

The rate of growth for emerging economies is expected to be around 4.5%, down from 7.9% in 2007.

The Bank said a deep global recession could not be ruled out.

And its forecast suggests that, on a per capita basis, world growth would be negative in 2009.

"Following the insolvency of a large number of banks and financial institutions... capital flows to developing countries have dried up and huge amounts of market capitalisation have evaporated," the bank said.

The World Bank has warned that some emerging economies are likely to face serious challenges, including bank failures and currency crises, even if global bail-out plans start restoring confidence in financial markets.

The Bank's chief economist, Justin Lin, said the financial crisis "has eased tensions in commodity markets, but is testing banking systems and threatening job losses around the world".

It also warns that capital flows to developing countries are shrinking fast, reducing the level of investment, while the slowdown in world trade is likely to cut into their export markets.

Regional impacts

Even the fast-growing emerging giants, India and China, are likely to suffer from the slowdown. The World Bank projects China's growth to slow from 11.9% in 2007 to 7.5% in 2009, while India's growth prospects will be cut from 9% to 5.8%.

The impact of falling commodity prices has been positive for around half of developing countries.

In response to the global downturn, the World Bank is increasing its support for developing countries by helping local banks recapitalise and providing aid for infrastructure projects.

Despite the current crisis, the Bank says that the long-term growth prospects for developing countries remain strong, and this will lead to substantial reduction in world poverty rates by 2015, with just 15% of people living on less than $1.25 per day, compared to 25% in 2005.

However, it warns that severe poverty in sub-Saharan Africa will fall less quickly, with 37% still living on $1.25 per day by 2015.