World Bank predicts shrinking global economy

The global economy is likely to shrink this year for the first time since the second world war, the World Bank has warned.

In a paper produced ahead of a summit this week for 20 central bank governors, the Bank predicts that growth will be at least five percentage points below potential.

Meanwhile, world trade looks set to record its largest decline in 80 years, with the sharpest losses expected in East Asia. Global industrial production could be up to 15% lower than 2008 levels by the middle of this year.

The World Bank says that developing economies are particularly vulnerable to the global slowdown, and face a financing shortfall of $270 billion to $700 billion (£191 billion to £496 billion) as private sector creditors shun emerging markets.

Only a quarter of the most vulnerable countries have the resources to prevent a rise in poverty, meaning that governments and the private sector must step in, the Bank says.

Robert Zoellick, the president of the World Bank, says: “We need to react in real time to a growing crisis that is hurting people in developing countries. This global crisis needs a global solution and preventing an economic catastrophe in developing countries is important for global efforts to overcome this crisis.

“We need investments in safety nets, infrastructure, and small and medium size companies to create jobs and to avoid social and political unrest.”

The bank says that 94 out of 116 developing countries have experienced slowing growth, and of these, 43 have high levels of poverty. The hardest hit sectors for declining production and job losses include construction, mining and manufacturing.

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