World Bank Sees Economy Shrinking 3 Percent This Year

By NELSON D. SCHWARTZ - THE NEW YOR TIMES
June 12, 2009

PARIS - Underscoring the risk that hopes for a quick turnaround may be premature, the World Bank said Thursday that it expected the global economy to shrink nearly 3 percent in 2009, far deeper than the 1.7 percent contraction it predicted slightly more than two months ago.

Although the bank said that it expected growth in developed countries to resume next year, emerging-market countries could feel the effects of "aftershocks" for several years, as the full impact of the worst downturn since World War II became apparent.

"It´s quite clear that even if the developed world starts on a path of recovery, for many developing countries, it will take longer," the World Bank´s president, Robert B. Zoellick, said Thursday. "Financial markets seem to have broken the fall but there are clear fragilities and risks remain."

"Some of these fragile developing economies don´t have any cushion," he added.

The gloomy outlook is likely to top the agenda this weekend as finance ministers gather for a Group of 8 meeting in Lecce, Italy, and assess progress since the broader G-20 summit meeting with President Obama and other world leaders in London in early April.

Despite a recent burst of optimism that the American economy has turned the corner, with the pace of job losses showing signs of easing, economies elsewhere remain deeply troubled.

Since the World Bank´s last estimate for 2009, released on March, 31, Europe has continued to weaken. Meanwhile, unemployment in the United States is still on the rise, and house prices are also still falling.

New figures released this week showed German exports in April declined 28.7 percent from a year ago, the steepest drop since the government began keeping records in 1950. Meanwhile, industrial production fell 1.9 percent in April from the previous month, well below the 0.3 percentage point increase economists had been expecting.

Last week, the European Central Bank predicted the economy would contract 4.1 to 5.1 percent in 2009, sharper than the 3.2 percent contraction the European Central Bank predicted in March.

By contrast, the United States economy is expected to contract 2.8 percent this year, according to I.M.F. estimates, and many private economists say growth could resume in the second half of the year.

"We are seeing more signs of improvement in the U.S. than across the euro area," said Jonathan Coppel, a senior economist at the Organization for Economic Cooperation and Development. But both economies are still in recession, he pointed out, "and we´re not out of the woods yet in either region."