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Thursday, 2 April 2009

Global recession pushing millions into poverty

WASHINGTON (AFP) - - The World Bank Tuesday forecast record declines in 2009 global output and trade as the economic crisis bites, and warned a slowdown in the developing world is pushing millions into poverty.

The global economy is expected to shrink by 1.7 percent in 2009, "the first decline in world output since World War II," the bank said in an outlook update released two days before world leaders meet in London to coordinate a global response to the crisis.

The sharp contraction marks a dramatic 2.6 point downward revision from the 0.9 percent growth in 2009 forecast only last November.

The update "reflects the rapid deterioration in financial and economic conditions -- and the increasingly negative interaction between weakening economies and fragile financial systems -- that have come to the fore since late 2008 for virtually every country in the world," the 185-nation development lender said.

Developing countries have been hit harder than anticipated in the global economic crisis and lack the means to withstand the onslaught.

Gross domestic product (GDP) growth in developing countries is expected to slow to 2.1 percent, less than half the November forecast of 4.4 percent, and sharply lower than 5.8 percent in 2008.

Recessions were projected in Europe and Central Asia (negative 2.0 percent), and Latin America and the Caribbean (negative 0.6 percent).

"The 2009 downturn in world GDP and trade is unprecedented," the Washington-based bank said.

World Bank president Robert Zoellick said the recession was expected to trap 53 million more people in poverty this year, defined as subsistence living on less than 1.25 dollars a day.

"This comes after soaring food and fuel prices of recent years, which pushed 130 to 155 million people into extreme poverty, many of whom have still not recovered," Zoellick said in a speech in London.

Poor people in developing countries have little buffer to protect them against the effects of the crisis.

"In London, Washington, and Paris people talk of bonuses or no bonuses. In parts of Africa, South Asia, and Latin America, the struggle is for food or no food," he said.

Zoellick called on the Group of 20 industrialized and developing countries and the European Union, whose leaders are holding a crisis meeting in London Thursday, to support measures to help developing countries, such as the bank's appeal to developed countries to donate 0.7 percent of their stimulus spending to its Vulnerability Fund.

"Unlike economic crises in the past sixty years, this is a global crisis. It will require a global solution," the former US trade envoy said.

"These events could next become a social and human crisis, with political implications," he added.

According to the latest GDP projections, high-income economies would shrink 2.9 percent this year, a notch more than the prior estimate of 2.8 percent.

Justin Lin, the World Bank's chief economist and a senior vice president, said that China and India would continue to fuel growth in the developing world.

"If you would take out China and India (there is) zero percent growth this year," Lin said at a background briefing Monday.

The Washington-based bank projected trade volumes would drop a record 6.1 percent from 2008, led by a steep decline in manufactured goods trade.

"This is the largest contraction in 80 years, that is since the Great Depression," Lin said.

Hans Timmer, manager of the bank's Global Trends, Development Prospects group, said a key risk for developing countries was a balance of payments crisis as once-abundant private capital inflows dry up.

The World Bank projected a financing gap for developing countries of up to 700 billion dollars. Eighty-four of 109 developing countries would face financing gaps, particularly in Europe and Central Asia, Latin America, and Sub-Saharan Africa.

A "modest" recovery in 2010 was possible but highly uncertain, the bank said.

"Continued banking problems or even new waves of tension in financial markets could lead to stagnation in global GDP or even to another year of decline in 2010."

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