IMF finally calls it – the world economy will shrink in 2009, and developing countries are hit harder than we thought

March 20, 2009 1 By admin

Every revision of global growth predictions has been heading towards zero, and now the IMF, in its report to the G20 finance ministers’ meeting last weekend,  has taken the next step. It predicts the world economy will shrink in 2009, (by minus 0.5-1%) for the first time in 60 years. It’s pretty safe to assume that this won’t be the last downward move.

Take a look at the chart. Developing country growth is the only positive bar left (though well below the rate of population growth), but it was the largest downward revision in the forecast, marking the increasingly rapid contagion via finance, trade, remittances, commodity prices etc. In terms of the difference between growth in 08 and 09 only Japan takes a bigger hit than the developing world.

And the difference of course, is that most developing countries are much less able to protect themselves or the poorest communities from the downturn. ‘Automatic stabilizers’ such as social protection are much more threadbare and access to finance is getting harder as the rich countries’ fiscal stimulus gobbles up capital. The IMF concludes:

“As the crisis becomes more prolonged, a growing number of emerging economies will find room for policy maneuver becoming increasingly limited. Large-scale official support is likely to be needed from bilateral and multilateral sources.”