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UPDATE 2-World Bank tells G8: 2009 remains dangerous year

Published 07/06/2009, 08:44 AM
Updated 07/06/2009, 08:48 AM
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* World Bank chief says too early to assume recovery at hand

* Warns developing countries to suffer more pain, job losses

(Adds details about Africa conflict risk in paragraph 9)

By Laura MacInnis

GENEVA, July 6 (Reuters) - The Group of Eight nations should not presume a global economic recovery is near, World Bank President Robert Zoellick said in a letter to G8 host Italian Prime Minister Silvio Berlusconi obtained by Reuters on Monday.

The letter, dated July 1 and copied to all G8 leaders, said interventions by central banks and governments appeared to have "broken the fall in the global economy" by stabilising financial markets and boosting demand.

"Yet 2009 remains a dangerous year. Recent gains could be reversed easily, and the pace of recovery in 2010 is far from certain," Zoellick wrote.

"I recognise that some developed countries are now considering a policy mix that assumes the recovery is at hand. But for the developing world, it is far too early to think of such measures."

The G8 heads of government are expected to issue a statement on the situation of the world economy during their meeting in the central Italian city of L'Aquila, where financial regulation needs will be discussed alongside perspectives on the Middle East, Iran, North Korea and Somali piracy.

In his letter, Zoellick stressed the July 8-10 summit should also "focus on the plight of the poor in the developing world".

The World Bank estimates that the gross domestic product of developing countries except for China and India will decline by 1.6 percent this year.

"A decline in the average GDP growth rate in developing countries by 1 percentage point can trap as many as 20 million more people in extreme poverty," Zoellick wrote, stressing drops in remittances, exports, investments and tourism revenues will continue to hurt poorer countries for some time.

"Fragile countries in Africa are most at risk, hit by higher unemployment rates, especially among young people, increasing the risk of a relapse into conflict," he said. "Unlike developed countries, most developing countries are not in a position to borrow and spend to reverse the downward spiral."

In the year to June 30, the World Bank committed $60 billion in aid to developing nations, much of it for infrastructure projects. Zoellick said wealthy nations should not hold back on further aid commitments in spite of the economic uncertainty.

"These investments will also help the people of your countries by boosting global demand and encouraging the development of multiple poles of more balanced growth," Zoellick wrote the G8, which is made up of Italy, France, Germany, Britain, Canada, Russia and the United States.

A copy of the letter was also sent to U.N. Secretary-General Ban Ki-moon, who said earlier on Monday in Geneva the global financial downturn has pushed as many as 90 million more people into extreme poverty worldwide. (Editing by Louise Ireland)

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