The United Nations says the world economy faces its worst downturn since the Great Depression.

It expects world economic output to shrink by as much as 0.4% in 2009, due to a slump among developed countries – particularly the US and in Europe.

This would mark the world economy’s first year of contraction since the 1930s, the UN said.

The UN expects developed economies to shrink by up to 1.5%, while developing nations should expand by at least 2.7%.

But because of higher population growth in developing countries, income per capita for the world as a whole is expected to fall in 2009.

And the slowing of growth in the poorest countries “suggests a significant setback in the progress made in poverty reduction in many developing countries over the past few years.”

The UN’s World Economic Situation and Prospects 2009 report gives three forecasts for growth next year – a baseline forecast of 1% growth, a pessimistic scenario of a 0.4% contraction and an optimistic scenario of 1.6% growth.

This compares with growth of 2.5% in 2008 and 3.8% in 2007.

The report said that developed economies have led the downturn, but that the global nature of trade and finance meant that economic weakness had spread rapidly to developing countries.

It warned that the international community had been complacent about the impact of the global financial crisis on poorer countries.

They are facing higher borrowing costs and lower export growth.

The UN also says that the downturn highlights key failures in the international financial system.