Global slump hits developing countries, trade: World Bank

Justin Yifu LinThe global financial crisis has dimmed short-term prospects for developing countries and the volume of world trade is likely to contract for the first time since 1982, the World bank said in the Global Economic Prospects 2009 report.

The sharp slowdown has caused commodity prices to plummet, ending a historic five-year boom.

The report released on Tuesday, finds the global economy transitioning from a long period of strong developing-country-led growth to one of great uncertainty as the financial crisis in developed countries has shaken markets worldwide.

GEP 2009 projects that world GDP growth will be 2.5 per cent in 2008 and 0.9 per cent for 2009. Developing countries will likely grow by 4.5 per cent next year, down from 7.9 per cent in 2007, while growth in high-income countries will turn negative.

''People in the developing world have had to deal with two major external shocks -- the upward spiral in food and fuel prices followed by  the financial crisis, which has eased tensions in commodity markets but  is testing banking systems and threatening  job losses around the world,'' said Justin Lin, World Bank chief economist and senior vice president, Development Economics. ''Urgent steps are needed to help reduce fallout from the crisis on the real economy and on the poorest, including through projects that build better roads, railways, schools, and health care systems,'' he added.

In the light of the crisis, the World Bank said the group is increasing its support for developing countries, including through new IBRD commitments of up to $100 billion over the next three years as well as via its private sector arm, the IFC, in the form of facilities for trade finance, banking recapitalisation, and for privately-funded infrastructure projects facing financial distress.