Washington: The world could go through its worst recession since the Great Depression as a massive financial crisis has slashed global investment and sharp drops in commodity prices severely hurt poor-country exports, the World Bank warned Tuesday.
The global development bank slashed its previous estimates for global growth to 2.5 per cent in 2008 and 0.9 per cent in 2009, well below the three-per cent rate typically considered the dividing line between global growth and contraction.
"The financial crisis is now likely to result in the most serious recession since the 1930s," said the World Bank's chief economist Justin Lin, as the group released its annual report on the global economy.
The current economic slowdown was notable for both its length and breadth across all regions of the world, leading to a contraction in the most wealthy nations and a sharp slowdown in emerging countries, the bank said.
The bank's analysis pointed to a number of indicators of a dramatic slowdown. Global trade volumes will contract for the first time since 1982. Worldwide investment will fall 50 per cent in 2009, compared to 2007.
The financial crisis has cut access to loans in advanced and developing countries, pulling investment out of poorer nations and reducing consumer spending.
A record surge in energy, food and metal prices in the first half of 2008 plunged between 130 and 155 million new people into poverty as families struggle to pay for food, the bank said.
But the sharp drop in commodity prices since the summer has hurt poorer nations' exports and added to the global recession. The World Bank still expected commodity prices to remain far higher in the future than in the last decade as emerging countries continue to use up more resources.
Oil prices will average $75 per barrel in 2009, the bank said. Crude oil is currently below $40 but stood above $140 per barrel in July.
The forecasts are dramatically lower than the 2.2-per cent growth in 2009 predicted by the bank's sister organisation, the International Monetary Fund.
Lin urged all countries with the ability to increase government spending to use it to boost domestic demand. But he warned that wealthy nations must invest in projects that will spur long-term growth, such as by investing in clean energy or infrastructure.
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