Global Trade to Decline Next Year, World Bank Says

International trade will shrink in 2009 for the first time in more than 25 years as economic growth slows and commodity prices slide, the World Bank said.

World trade volumes will probably contract next year by 2.1 percent, hampered by exchange rate volatility, flagging import demand and a decline in export financing stemming from the credit crisis, the bank said today in its annual Global Economic Prospects report.

“Urgent steps are needed to help reduce fallout from the crisis on the real economy and on the poorest,” World Bank Chief Economist Justin Lin said today in a press release.

Fiscal stimulus and coordinated interest-rate cuts by governments in the U.S., Europe and other regions have failed to reverse a worldwide economic slowdown and the worst credit crunch in seven decades.

Gross domestic product in developing countries will increase 4.5 percent in 2009 compared with 6.3 percent this year, while global growth will slow to 0.9 percent, or the weakest rate since records became available in 1970, the World Bank said.

“If the freeze in credit markets does not thaw” as predicted by the World Bank, “the consequences for developing countries could be catastrophic,” the Washington-based lender said in the report released in Washington. The bank is forecasting growth in China to slow to 7.5 percent next year from 9.4 percent in 2008.

Triple Loans

The World Bank has said it plans to nearly triple loans to poor countries to $35 billion in the year ending June 2009, while pledging $100 billion over the next three years.

The collapse in global economic growth will continue to weigh on commodity prices, the report said.

The price of a barrel of oil will probably average $75 next year, a decline of more than 30 percent from 2008, the bank said. Food prices are expected to decline by 23 percent compared with their average in 2008, a trend that won’t necessarily help African countries where food production lags population growth.

Moreover, economic growth in some African countries “may slow to the point where it is no longer keeping pace with population growth,” Lin said at a press conference in Washington.

Export growth for developing countries will slow to 3 percent next year from an average of 15 percent during the past five years, the World Bank said.

Developing “countries will not only sell less, but there is a price shock too” from the declining prices of export commodities, Hans Timmer, a World Bank economist, said at the press conference.

The outlook for the global economy is unusually difficult to predict, the World Bank said.

“The freezing of credit markets, collapse of stock markets, large shifts in exchange rates and commodities prices and unprecedented policy actions have combined to create an extremely uncertain environment for market participants and forecasters alike,” the lender said.