A new World Bank report, Global Economic Prospects 2009, examines the impact of the financial crisis on GDP growth across the world, noting a marked slowdown everywhere, including in formerly resilient developing countries. Subtitled Commodities at the Crossroads, the report finds that future demand and supply of key commodities like oil and food can be balanced given the right policies in the energy and agriculture sectors.
In its global economic outlook section, the report predicts that global GDP growth will slip from 2.5 percent in 2008 to 0.9 percent in 2009. Developing country growth is expected to decline from a resilient 7.9 percent in 2007 to 4.5 percent in 2009. Growth in rich countries next year will likely be negative.
“We see that the global economy is transitioning from a long period of strong growth led by developing countries to one of great uncertainty as the ongoing financial crisis has shaken markets worldwide,” said Hans Timmer, Manager, Global Trends, in the World Bank’s Development Prospects Group. “The slowdown in developing countries is very significant because the credit squeeze directly hits investments, which were a key pillar supporting the strong performance of the developing world during the past 5 years.”
With tighter credit conditions and less appetite for risk, investment growth in the developing world is projected to fall from 13 percent in the 2007 to 3.5 percent in 2009, deeply significant because a third of GDP growth can be attributed to it.
Timmer and other economists at the World Bank project that world trade will contract by 2.1 percent in 2009. This is the first time since 1982 that world trade will shrink. All countries will be affected by this drop in exports, which reflects not only the sharp slowdown in global demand, but also the reduced availability of export credits.
In East Asia and the Pacific, GDP growth slowed to an estimated 8.5 percent in 2008 and is expected to drop to 6.7 percent in 2009. The region has been hit by a heavy sell-off of equities and sharp downturns in export volumes. China’s growth is projected to slow from 9.4 percent in 2008 to 7.5 percent in 2009, but the government’s recently announced $586 billion stimulus program may edge China’s growth back to 8.5 percent in 2010.
GDP growth in Europe and Central Asia is expected to slow to 5.3 percent in 2008, falling to 2.7 percent in 2009. The downturn is being driven by lower investment tied to difficult financing conditions and weaker export market demand. Russia’s growth will likely be 6 percent in 2008, down from 8.1 percent in 2007, as the banking crisis and low oil prices remain in play.
In Latin America and the Caribbean, GDP growth—expected to be 4.4 percent in 2008—is at risk, pressuring private sector investment. As commodity prices weaken, major exporters like Argentina may record current account deficits. Others like Brazil and Mexico will see a drop in exports to the recession-hit United States and Europe. The regional outlook is expected to worsen in 2009, with GDP dropping to 2.1 percent, driven by a decline in capital spending.
The Middle East and North Africa region appears to have held up well in 2008, growing at an unchanged 5.8 percent in 2008, but the aggregate number hides substantial swings in trade, current account positions and external financing requirements. With oil exporters facing diminished revenues in 2009, regional growth is expected to be just 3.9 percent in 2009.
Growth in South Asia eased to 6.3 percent in 2008 from 8.4 percent in 2007 and is expected to slip to 5.4 percent in 2009. High food and fuel prices, tighter credit conditions, and weaker foreign demand have led to worsening external accounts and slower investment growth. The downturn is most apparent in India and Pakistan, where industrial production fell sharply.
In Sub-Saharan Africa, growth expanded to 5.4 percent in 2008, and is expected to ease to 4.6 percent in 2009. But the contribution of net exports to African GDP growth may fall, and many countries are exposed to terms-of-trade shocks. Higher food and fuel prices have also widened the poverty gap, raising the risk of social unrest.
The report’s complete projections can be found on a companion website, http://www.worldbank.org/globaloutlook
, which is available in English, Chinese, French, and Spanish.