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World Bank sees 3% global contraction

Posted on: June 14, 2009

AFP – Friday, June 12

WASHINGTON (AFP) – – The World Bank said Thursday the global economy is set to contract some 3.0 percent this year, sharper than previously estimated, urging more aid for developing countries amid the spreading crisis.

The latest growth estimate marked a significant revision to the bank’s prior estimate of a 1.75 percent contraction in late March and came ahead of a two-day meeting of Group of Eight (G8) finance chiefs that opens Friday in Lecce, Italy.

“Financial markets seem to have broken the fall over past months but there are clear fragilities, and risks remain,” World Bank president Robert Zoellick said in a conference call with reporters.

“The developed economies seem to be contracting at a slower pace but the effects of the global economic downturn are rippling through the world and still very much hurting developing countries,” he said.

The World Bank will be revising its gross domestic product (GDP) growth estimates in the next few weeks, he added.

Zoellick said the Washington-based development lender expected to see continuing “wave effects” from the steep downturn that will pound the most vulnerable countries and populations the hardest.

“Unemployment is still rising in both the developed and developing world,” he noted, adding that the rise signals “there’s the danger of destablization and even the return of risk of conflict.”

The global financial crisis that began in the United States home mortgage market in August 2007 and accelerated with the collapse of Wall Street investment bank Lehman Brothers in September has now infiltrated the developing world, he said.

“We’re starting to see factors like the increase of the nonperforming loans in the African economy as the downturn in financial markets in the developed world hit the real economy and then it moves to the real economy in the developing world and now it’s hitting the financial sector in the developing world,” Zoellick said.

“What I hope to do in this coming G8 meeting is give an update on where we see the challenges for the developing countries over the next 12 months or so,” he said.

He said funding was “particularly critical” for the bank’s International Development Association (IDA), the arm that focuses on the 78 poorest countries.

Demand for IDA grants and interest-free loans is on track to total more than 13 billion dollars, a record high, for fiscal year 2009 that ends on June 30, compared with 11.2 billion last year.

In response to a question whether he would lobby for IDA funds at the G8 meeting, Zoellick said the United States and Italy “have to take some additional steps.”

Countries need to continue to provide financial support for developing countries, “even” Mexico and Indonesia, and “for a longer period than people had expected, he said.

Zoellick warned that the downturn was severely straining post-conflict countries, citing Haiti, Liberia and Afghanistan.

“These are the countries that are often very dependent on commodity exports, remittances, development assistance to deal with emergency or security issues — and all of these are under stress,” he said.

The 185-nation bank estimates it will provide between 50 to 60 billion dollars in lending over fiscal 2009.

Zoellick in a statement urged G8 meetings this month and in July to “follow up on the promises made at the Group of 20 meeting in London in April to restore domestic lending and the international flow of capital.”

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