World economy may shrink 2.6% in '09: UN

The United Nations has forecast the world economy to shrink 2.6 per cent in 2009, downgrading the already-pessimistic estimate made five months ago.

"The world economy is expected to shrink by 2.6 per cent in 2009, according to the pessimistic scenario of the forecast presented in January," the world body said in a mid-year report by UN Department of Economic and Social Affairs (DESA).

In January, the UN had forecast that the world economy would shrink 0.5 per cent this year.

Rob Vos, Director of DESA's Development Policy and Analysis Division, told a news conference on Wednesday that "We are less sanguine than some observers about possible green shoots emerging. If they are there they don't give much sign of being spring time. It is still very wintry landscape."

With its increasing impact both in scope and depth worldwide, the global financial crisis poses a significant threat to world economic and social development, including the fulfilment of the Millennium Development Goals and other internationally agreed development goals, according to DESA.

The report predicted that with a coordinated, development-oriented policy scenario, the world economy would recover to an annual growth of 4-5 per cent in 2010-2015, led by a robust growth of 7 per cent a year in developing nations.

"This is in contrast to the uncoordinated scenario in which developing countries would recover at only half that rate," DESA said.

Although the crisis originated in developed countries, "it is now evident that developing countries are being hit disproportionately hard through capital reversals, rising borrowing costs, collapsing world trade and commodity prices, and subsiding remittance flows", it stated.

During the first quarter of 2009, world trade dwindled at a "dramatic" annual rate of more than 40 per cent, with the deepest impact felt by the exporting countries of Asia.

Growth in Africa's gross domestic product is expected to slow to 0.9 per cent, down from 4.9 per cent in 2008. South American economies may shrink almost one per cent on an average in 2009, while Mexico and the Central America are projected to fall by more than 4 per cent.

The report estimated that 73-105 million more people will remain poor or fall into poverty in comparison with a situation in which pre-crisis growth would have continued.

"Most of this setback will be felt in East and South Asia, with between 56 and 80 million people likely to be affected, of whom about half are in India. The crisis could keep 12 to 16 million more people in poverty in Africa... 4 million in Latin America and the Caribbean," it said.

The report added at present the stimulus is unbalanced.

"Eighty per cent of the stimulus is concentrated in developed countries, while most developing countries lack the fiscal space to provide social protection and counteract the consequences of the crisis. In a more balanced global response, about USD 500 billion in additional development finance would be made available for countercyclical responses by developing countries."