In the lead-up to the G-20 summit in Washington, the World Bank released figures this week confirming that the global economy is rapidly heading into recession. Its global outlook predicted a growth rate of just 1 percent for the world as a whole in 2009 and a contraction of 0.1 percent for the high-income countries.
As if to confirm the forecast, Germany officially entered recession yesterday for the first time in five years, after announcing its second consecutive quarterly contraction—0.5 percent in the third quarter. EU figures to be published soon are expected to show the entire eurozone is already in recession after a 0.2 per cent drop in GDP from April to June. Japan’s third quarter figures to be released next week are also likely to show a second successive contraction.
The Organisation for Economic Cooperation and Development (OECD), which covers the world’s major industrialised economies, issued similar gloomy forecasts yesterday. The OECD predicted contractions in 2009 of 0.9 percent, 0.1 percent and 0.5 percent for the US, Japan and the eurozone, respectively. OECD economist Jorgen Elmeskov told the Financial Times that the “mess” stemmed from a financial crisis that was engulfing rich and poor countries alike.
World Bank President Robert Zoellick said on Tuesday that developing countries were increasingly seeking financial assistance. He said that his organisation expected that lending would more than double from $13.5 billion last year up to $35 billion this year. He noted that “countries that had very good, sound macro-economic programs [like] Mexico, Indonesia” were worried about getting financing and seeking World Bank assistance.
The global financial crisis has already witnessed large withdrawals by foreign investors from developing economies—fuelled both by fears of growing risk and to shore up balance sheets at home. The World Bank expects private capital flows into developing countries to almost halve, from $1 trillion last year to around $530 billion in 2009. Even this investment will not be evenly spread, with countries like China and India absorbing the largest share.
The World Bank also highlighted the rapid decline in international trade—a key indicator of a global slump—forecasting a large contraction of 2.5 percent in world trade volumes for 2009. This is a precipitous fall from an expected growth of 5.8 percent this year and of nearly 10 percent just two years ago in 2006. Alongside plunging oil prices, the World Bank predicts that prices for non-oil commodities will fall by 23.2 percent in 2009.
Falling demand, collapsing commodity prices and the international credit crunch are all impacting most heavily on the world’s poorest countries and thus on hundreds of millions of people who are already poverty stricken. The World Bank estimates that every one percent decline in the growth rate of developing countries pushes an additional 20 million people into poverty. On the basis of the World Bank forecasts, that means an additional 40 million people will join the world’s poor next year.
As with the IMF, everyone has a hand out for cash. I ask one more time, where will all this money come from? Who will be the benefactor?