Tuesday, forecasts issued by the Organisation for Economic Co-operation and Development, or OECD, and the World Bank revealed a bleak picture of the global economy in 2009, reflecting the rapid deterioration of global financial and economic conditions.
In its interim economic outlook, the OECD forecast the world economy to contract 2.7% in 2009. At the same time, the World Bank lowered its projection to 1.7% decline from just 0.9% contraction predicted initially.
The global recession will worsen this year before a policy-induced recovery gradually builds momentum through 2010, the OECD report said.
The Paris-Based OECD said economic activity is expected to plummet by an average 4.3% in the OECD area in 2009, a sharp revision from a 0.4% contraction predicted in November 2008. Meanwhile, the World Bank projects GDP to decline 3% in OECD countries.
The World Bank said GDP growth in the developing world is likely to slow to 2.1% in 2009 from 5.8% in 2008. In November 2008, the Bank had forecast a growth of 4.4% in developing countries.
Across the developing world, we see that conditions of recession are affecting the poorest people, making them even more vulnerable than before to sudden shocks-but also reducing opportunities available to them, and frustrating their hopes, said Justin Yifu Lin, World Bank Chief Economist and Senior Vice President, Development Economics.
The OECD forecasts that the U.S. GDP is set to fall 4% in 2009 and then remain unchanged next year. That shows a sharp revision from its semiannual economic outlook released in November 2008, which said the U.S. GDP is projected to fall 0.9% this year.
In Japan, economic output is projected to fall 6.6% this year as shrinking export markets more than offset policies to encourage domestic spending. For 2010, the OECD sees an economic contraction of 0.5%. Further, it warned that deflation would return as spare capacity puts downward pressure on prices.
For euro area, the OECD projects GDP to drop 4.1% in 2009 and by 0.3% next year. Weak export markets, falling investment and a continuing credit crunch will hit Euro area activity hard over the coming six months, it said.
In the large emerging economies, activity is slowing as access to international credit dries up, commodity prices fall and export demand weakens. According to the OECD, Brazil's GDP is expected to decline 0.3% in 2009, while Russia's is projected to fall 5.6%. Growth in India will ease back to 4.3% this year and in China to 6.3%.
The Interim Outlook adds that the risks of an even gloomier scenario outweigh the possibility of a quicker recovery. The most important risk is that the weakening real economy will further undermine the health of financial institutions, which in turn deepens the slump in economic activity, the OECD report said.
The World Bank forecast showed that Europe and Central Asia GDP is expected to fall 2% in 2009, compared with a 4.2% increase recorded in 2008. Latin America and the Caribbean GDP are projected to decline 0.6% following an increase of 4.3% in 2008.
GDP growth in East Asia and the Pacific is expected to ease to 5.3% in 2009, as growth in China slumps to 6.5%, and several smaller economies in the region, including Thailand fall into recession, the Bank said. GDP growth for South Asia is expected to slow to 3.7%.
The Middle East and North Africa appears least affected among developing regions, dropping just 0.3 points from earlier projections to 3.3%. Reduced oil revenues and cuts in oil output will restrain GDP among oil exporters to 2.9% from 4.5% in 2008, the World Bank said.
The Bank noted that the developing world's need for external financing is likely to increase to US$1.3 trillion in 2009. With declining capital flows, this would generate a financing gap of between US$270 and US$700 billion.
The Bank predicts the world GDP growth to increase to 2.3% in 2010. However, if a balance of payments crisis were to emerge within a developing region, it would prove difficult to contain and would hamper global recovery.
World Bank President Robert Zoellick said the crisis is hurting developing countries and G-20 must restore confidence. This is not a moment for complacency. It is not a day for expressing false confidence that all has been done that can be done. It is not a time for narrow nationalist or even regional responses. The one certitude we can draw from events over the past year is our inability to predict what is to come, and how it may trigger other unexpected events, Zoellick said.
Also on Tuesday, rating agency Fitch said World GDP is forecast to decline 2.7% this year. US GDP is expected to fall 3.4% this year, the steepest 'peace-time' recession since 1938 - and unemployment is forecast to reach 10% next year. German and Japanese GDP are expected to fall by 3.7% and 6.7%, respectively. In the largest emerging markets - Brazil, Russia, India and China-growth is expected to remain positive at 3.2%.
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