MercoPress. South Atlantic News Agency

Global trade expected to contract for the first time since 1982

Hans Timmer, Manager of Global Trends

The World Bank Global Economic Prospects 2009 predicts that global GDP growth will slip from 2.5% in 2008 to 0.9% in 2009 and world trade will contract by 2.1% next year, something not seen since 1982. Developing country growth is expected to decline from a resilient 7.9% in 2007 to 4.5% in 2009 with growth in rich countries next year most likely 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% in the 2007 to 3.5% in 2009, deeply significant because a third of GDP growth can be attributed to it. Timmer and other WB economists project that world trade will shrink by 2.1% in 2009 and all countries will be affected the drop in exports which reflects not only the sharp slowdown in global demand, but also the reduced availability of export credits. Regarding economic performance in the different world regions according to the 2009 Prospects In East Asia and the Pacific, GDP growth slowed to an estimated 8.5% in 2008 and is expected to drop to 6.7% 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% in 2008 to 7.5% in 2009, but the government's recently announced 586 billion USD stimulus program may edge China's growth back to 8.5% in 2010. GDP growth in Europe and Central Asia is expected to slow to 5.3% in 2008, falling to 2.7% 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% in 2008, down from 8.1% 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% 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% 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% 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% in 2009. Growth in South Asia eased to 6.3% in 2008 from 8.4% in 2007 and is expected to slip to 5.4% 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.