According to a report released by the World Bank, the global economy is entering an era of slower growth that will require stricter and more effective oversight of the financial system. The Washington-based lender said on Monday the global recession this year will prompt the world economy to contract at 2.9% pace, compared with a previous forecast of a 1.7% decline, as developed economies recede by 4.5%. The World Bank is certainly more pessimistic than the International Monetary Fund [IMF]. The IMF is forecasting a global contraction of only 1.3 % this fiscal year and growth of 2.4% in 2010.
Developing countries, notes the WB report, are expected to grow by only 1.2% this year, after 8.1% growth in 2007 and 5.9% growth in 2008.
“The need to restructure the banking system, combined with emerging limits to expansionary policies in high-income countries, will prevent a global rebound from gaining traction,” said Justin Lin, World Bank Chief Economist and Senior Vice President, Development Economics, “Developing countries can become a key driving force in the recovery, assuming their domestic investments rebound with international support, including a resumption in the flow of international credit.” [WB]
The report also said net private capital inflows to developing countries fell to $707 billion in 2008, compared to a peak of $1.2 trillion in 2007, with international capital flows projected to fall further in 2009, to $363 billion.
On a regional basis, the report offered the following outlook:
East Asia and Pacific Growth: GDP is projected to fall by 4.7% in 2009, recovering to grow by about 1.6% in 2010.
Latin America and the Caribbean: Regional GDP is expected to decline by 2.3% in 2009, and to reach 2% growth in 2010.
The Middle East and North Africa: Growth is projected to halve to 3.1% in 2009, then edge up to 3.8% in 2010 and 4.6 % in 2011.
South Asia: GDP is projected to expand 4.6 percent in 2009, down from 6.1% in 2008. Regional output is then expected to increase by 7 % in 2010 and 7.8% in 2011.
Sub-Saharan Africa: has been hit hard by reduced external demand, plunging export prices, and tourism revenues. The region that was growing at a 5.7% annual rate in the past three years, will see growth slow to 1% in 2009 and 3.7% in 2010.
The world bank’s view seems to contrasts with that of George Soros, who over the weekend told Polish news channel that the worst of the global financial crisis “is behind us.”