Global recession set to deepen - World Bank

The World Bank said on Monday that the global recession this year will be deeper than it predicted in March and warned that a flight of capital from developing nations will swell the ranks of the poor and the unemployed.

The world economy will contract 2.9 percent, compared with a previous forecast of a 1.7 percent decline, the Washington-based lender said in its latest report. Growth will be 2 percent next year, down from a 2.3 percent prediction, the bank said.

Regionally, the bank said that while the Middle East and North Africa region has been less directly affected by the credit crunch than other regions, local equity and property markets have come under intense pressure, and developing countries in the region have suffered from much weaker conditions in the high-income countries in the region. 

Consequently, remittances, services exports and FDI flows from these countries and high-income Europe are expected to fall in 2009 - cutting into incomes.

Growth is projected to halve to 3.1 percent in 2009, then edge up to 3.8 percent in 2010 and 4.6 percent in 2011.

Global GDP growth is expected to rebound to 2% in 2010 and 3.2% by 2011. In developing countries growth is expected to be higher, at 4.4 % in 2010 and 5.7 % in 2011, albeit subdued relative to the robust performance prior to the current crisis.

"The need to restructure the banking system, combined with emerging limits to expansionary policies in high-income countries, will prevent a global rebound from gaining traction," said Justin Lin, World Bank Chief Economist and Senior Vice President, Development Economics, 

'''Developing countries can become a key driving force in the recovery, assuming their domestic investments rebound with international support, including a resumption in the flow of international credit."

While the authors note that extraordinary policy responses by a number of big economies have prevented systemic collapse, they stress the importance of concerted global action while the crisis is still underway.

''To prevent a second wave of instability, policies have to focus rapidly on financial sector reform and support for the poorest countries," said Hans Timmer, Director of the Bank's Prospects Group.

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