World Bank Says Global Economy Entering an Era of Slower Growth

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 multi-billionaire financier George Soros, who over the weekend told Polish news channel TVN24 that the worst of the global financial crisis “is behind us.”

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