World trade is expected to shrink for the first time since 1982, according to a new study by the World Bank. The Global Economic Prospects report says the current financial crisis has caused a sharp decline in commodity prices and will likely mean less investment, slower growth and fewer exports for developing countries.
The financial crisis that has roiled markets in rich countries is now hitting developing countries hard. Banks are at risk, many currencies are weak and foreign investments are down.
World Bank analyst Hans Timmer said countries that performed strongly last year are seeing record declines.
"Our forecast is for four-and-a-half percent growth in the developing world, that still seems high but that is more than three percent lower than in 2007, and that is one of the sharpest declines in growth on record," Timmer said.
The decline is blamed on weaker demand from developed countries. That has resulted in a slump in global trade, the first in 25 years. Less trade means losses in manufacturing and export markets, which in turn, have led to growing unemployment.
"Slower growth means also slower income growth for everybody in developing countries, including the poor, and higher rates of unemployment in developing countries," he stated. "That means that the benefits that we have seen over the last five, six years with record growth in developing countries will be on hold for a short period of time."
The report says developing countries in sub-Saharan Africa will enjoy faster economic expansion than most industrialized countries next year.
But many countries in Africa and East Asia will face difficulties raising money as credit tightens around the world.
Bank economist Andrew Burns says countries that rely on profits from oil and metals will fare better.
"The positive story there is that when we observe what commodities exporting countries have done over the last 20 years, they've been much more prudent in terms of the management of the windfall revenues they've received as compared with the 1990's and 1980's." Burns stated.
Although the recent decline in oil prices has resulted in lower energy and food costs, Burns says poor countries will need help from rich countries to survive the economic fallout.
The World Bank has not ruled out the possibility of a global recession but the report says the worst should be over by 2010.