The World Bank (WB) in its latest release said the world economy is at the brink of a rare economic recession. The most disturbing fact is that the economists are clueless to what would drive growth in the future to tide over the impending global recession. As per the bank’s prognosis the gross global trade is likely to register just 0.9 percent in 2009, the second slowest growth since 1982’s 0.3 percent. Lower global growth will have a serious negative impact on developing countries as well due to a drop in foreign investments by 50%. WB report also says that if the study is accurate, the developing nations would have to pay a huge price by pushing millions to poverty.
The Chief Economist of the WB, Justin Yifu Lin stated, “The financial crisis is likely to result in most serious recession since the Great Depression”. The growth projections for the developing countries next year are not that rosy either as they are expected to grow by just 4.5%, which is down by close to 4%, a growth figure which would not be sufficient enough to run these countries smoothly. Hans Timmer, a leading economist suggested lower growth in developing nations was tantamount to the recession trends in developed states.
The WB report stated the world trade growth was 9.8 percent in 2006, and it is estimated 6.2 percent growth in this year, but the coming year will witness a decline by 2.1 percent. A drop in capital flows into developing countries from $1 trillion in 2007 to $530 billion in 2009 has been extrapolated further in the report.
Lin pointed out there was not any lack in demand, but it was lack of availability of credit which was making the going tough. But he did not mention anything about the lack of confidence in market despite there were domestic demand drivers in several developing countries and some European markets. Nevertheless, some economists felt, the broader reach of internet and thereby information about markets going down elsewhere, had a triggering effect on self sufficient markets too, was seen as another reason for the world recession in the making.
However, the bank said the global gloom is not without a silver lining that lower food and fuel prices are helping poor nations to cope with the crisis. Though the prices of almost all commodities have fallen, they are still higher than 1990 levels, which would prevent them from future supply shortages.
The WB recommended that the countries should continue to provide stimulus packages to avoid the situation getting any worse. The bank per se has provided aid up to $100bn to developing countries over a period spanning three years.