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UPDATE 2-Global economy to shrink in 2009 -World Bank

Published 03/21/2009, 08:32 AM
Updated 03/21/2009, 08:48 AM

(Recasts with forecast, details)

By Mark John

BRUSSELS, March 21 (Reuters) - The global economy is set to shrink by one to two percent this year, World Bank President Robert Zoellick said on Saturday, saying the depth of the slowdown was unprecedented since the 1930s Great Depression.

Speaking at a conference in Brussels, Zoellick referred to a an International Monetary Fund (IMF) forecast that the world economy would shrink by one percent this year.

He said: "We in the bank will be coming up with ours again soon, probably in the range of one to two percent ... We haven't seen a figure like that globally since World War Two, which really means since the Great Depression."

The World Bank chief has raised concerns over existing efforts to tackle the crisis, warning of the risk of doing "too little, too late".

He has said that fiscal stimulus without addressing the roots of the credit crunch will be a mere "sugar high" with no lasting impact on the economy.

Zoellick proposed that the Group of 20 major and emerging economies -- whose leaders are due to meet in London next month -- establish a review process to see whether further stimulus measures would be needed to kickstart recovery.

"Out of the G20 process one should have a monitoring system," he told the conference organised by the German Marshall Fund transatlantic thinktank, suggesting a system of reviews on the impact of existing stimulus packages agreed by governments.

"Some of the packages actually withdraw stimulus in 2010. So given the uncertainty of this crisis I think you want to have a review process to see whether more would be needed in 2010."

Zoellick warned of a fall-off in world trade as countries retrenched into their domestic economies, and cited World Bank forecasts that up to 400,000 infants would die this year as an indirect effect of the economic crisis.

"There are issues that go beyond the economics to political and social stability," he said. "If kids don't get proper nutrition in their early years, you lose a generation."

Zoellick cited some progress in persuading rich countries to help developing states struggling to cope with a slowdown that hit revenues from from commodities exports and remittances from expatriate workers, but acknowledged there was resistance.

"It's hard at a time like this. Everyone is feeling stretched." (Additional reporting by David Brunnstrom; Editing by Richard Balmforth)

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