Page last updated at 08:35 GMT, Monday, 9 March 2009

World economy to 'shrink' in 2009

peasants in Vietnam
Emerging economies will grow more slowly in 2009

The global economy will shrink this year for the first time since World War II, the World Bank has said.

The bank's forecast is gloomier than other estimates, which still foresee some growth.

By the middle of 2009, industrial output could be as much as 15% lower than 2008, while trade may record the biggest decline in 80 years, it said.

Developing countries face a financing shortfall of up to $700bn (497bn) this year, the bank added.

The sharpest trade losses will be in East Asia, it said, where there are many large exporters.

Aid flows

"When this crisis began, people in developing countries, especially those in Africa, were the innocent bystanders in this crisis, yet they have no choice but to bear its harsh consequences," said World Bank managing director Ngozi Okonjo-Iweala.

Channelling infrastructure investment to the developing world...can have an even bigger bang for the buck and should be a key element to recovery
World Bank senior vice president Justin Yifu Lin

The crisis will make poor countries more reliant on development assistance because, as richer countries borrow more, it will become more difficult for poorer countries to raise debt, it said.

Only one quarter of the most vulnerable countries have the ability to finance measures to ease the impact of the downturn, said the World Bank, and its president Robert Zoellick called for investments to create jobs and "avoid social and political unrest".

Donors are already behind by $39bn on their commitments to increase aid at the Gleneagles summit in 2005, and the World Bank voiced its concerns that aid flows will become more volatile as the economy slows.

"Clearly, fiscal resources do have to be injected in rich countries that are at the epicentre of the crisis, " said Justin Yifu Lin, World Bank economist and senior vice president.

"But channelling infrastructure investment to the developing world, where it can release bottlenecks to growth and quickly restore demand, can have an even bigger bang for the buck and should be a key element to recovery, " he added.

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