The World Bank has released a dismal economic forecast for 2009, as G20 leaders prepare to meet this week in London (4/1-2) on the global recession. The Global Economic Prospects report looks at the regions that have been hit the hardest.
World Bank Senior Economist Mick Riordan says it's been a long time since the forecast for growth was so pessimistic.
"For the first time really since World War Two, we expect to see a decline in global GDP (Gross Domestic Product). That is the output of all industrial countries, as well as developing countries, and that decline is between one and two percent. So, really this is an unprecedented development for this year. We hopefully will be looking at a gradual recovery into 2010, but there's quite a bit of uncertainty about those figures. And for the moment we're concentrating on getting through this year," he says.
Riordan outlines which regions are most affected by the economic decline.
"The regions that have been hardest hit and who are actually going into recession themselves include Europe and Central Asia. That's effectively Central and Eastern Europe and Russia and the current CSIS (former Soviet) republics and Latin America," he says.
Russia is suffering from a sharp drop in oil prices, dealing a major blow to its economy. The price of oil is just one of the problems affecting Latin American countries.
"The overall change in commodity prices – where we went from the boom in grains…and oil prices, which was generally beneficial to the region. That's turned around substantially and now this is a hurting factor for the region. At the same time, you have many countries that are tightly linked with the United States, be it Mexico and their auto production, for example, linked to US production. And that's going downhill quite quickly," says Riordan.
However, sub-Saharan African countries overall are fairing a bit better.
"Sub-Saharan Africa is among those regions least hit by the financial aspects of the crisis. And that is generally because sub-Saharan Africa, with a few exceptions, be it South Africa and Nigeria, are not very tightly linked into the global capital markets. They are, however, very much dependent on foreign direct investment – and that's been picking up quite substantially over the last years – and upon remittances," he says.
But remittances are sharply lower and much of the continent will see slower growth this year compared to last.
"Growth in the sub-continent was almost five percent in 2008 and that's quite a strong story. That growth is halved to two-point-four percent this year we anticipate, with particularly hard hit being South Africa, down to a growth of about one-percent; Nigeria, from six-point-one (percent) to something like three-percent, given the decline in oil prices; and Kenya and some other large countries as well," he says.
The World Bank report takes a cautious approach in predicting a weak economic upturn next year.
"There are a number of moderately encouraging signs on the horizon. Statements by the (US) Treasury and some of the actions by Federal Reserve have received good market response to date. The equity markets are starting to firm up, which is a positive. Again, it's very short term. But we're also seeing some lights at the end of the tunnel, which we hope is not the locomotive coming at us, in terms of US spending orders and so forth. But we still have a long, long way to go," says Riordan.
That's because of such things as continued falling industrial and manufacturing production, down 50 percent in Japan, 20 percent in the United States and 15 percent in the developing world. The report says even if there's a slow rebound in 2010, "economic activity will remain depressed with disinflation and unemployment over the next two years."
"We hope that in the process of this G20 meeting that we get some more coordinated policies, possibly on the fiscal stimulus, or clearly on the financial reform side. And that these policies are effective in reducing uncertainty, which is another major factor in the financial markets," he says.
The World Bank senior economist says a positive outcome of the G20 meeting would be seeing some confidence restored and signs the financial markets are moving up once again.