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World Bank says global recession set to becom -

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The World Bank predicts the global economy will shrink by nearly 3 per cent this year, worsened by
a big drop in trade and business lending. Its latest report also says poor countries face a hard
time getting finance, and many of them will struggle to pay their foreign debt.

PETER CAVE: The World Bank has come out with another pessimistic report.

It's again downgraded the outlook for global growth this year because it says that foreign
investment and trade flows have dried up.

The bank says the world's economy will shrink by nearly 3 per cent this year and global trade will
plunge by almost 10 per cent.

It says that poor countries face a dismal problem getting finance and many will find it difficult
to pay their foreign debt.

Finance reporter Sue Lannin.

SUE LANNIN: Over the past few months the focus for the world economy has been on the glass half
full.

Share markets have rallied and the green shoots of recovery have appeared to take root.

But now the World Bank has downgraded its forecasts for the global economy this year, partly
because business lending has continued to stall.

The World Bank's Andrew Burns.

ANDREW BURNS: The revision is mainly a reflection of what has already happened rather than what's
going to happen over the next several months. When our earlier forecasts came out with those of the
IMF and many others, we hadn't gotten the first quarter results that were so bad in so many
countries and as a result much of the revision really is a reflection of how bad the first quarter
and the fourth quarter of 2008 were.

Looking forward, we do so recovery beginning in the second half of this year and into next year.

SUE LANNIN: But with world trade expected to drop by 10 per cent this year, a recovery in 2010
could be difficult and Andrew Burns says it could get worse.

ANDREW BURNS: We probably need a bit of good luck. There is the real risk that these concerns and
worries that drove the pulling back in investment that we saw in the third... the fourth quarter
rather of last year and the first quarter of this year, that they don't recover, that some of that
stabilization that we've seen most recently doesn't pursue.

And if that occurs then we have the possibility anyway that in some regions of the world,
particularly Europe and Central Asia, some of the former Soviet bloc countries, there is a
possibility of the crisis deepening in those countries and that they serve to be a further drag on
global growth.

SUE LANNIN: The main bright spots are China and India.

Their economies haven't been as badly affected by the global economic downturn because of their
strong level of domestic savings.

Andrew Burns again.

ANDREW BURNS: Some of the strength that we're currently seeing in the global economy is coming from
developing countries, particularly Chinese demand for imports is rising relatively rapidly. That's
sparking some of the recovery or some of the stabilization that we observe in Japan. So there is
something coming from developing countries.

The real story here is that we are going into a recovery that is going to be a lot weaker than it
has been in the past.

SUE LANNIN: Richard Martin, managing director of consultancy IMA Asia, is an optimist but he agrees
that the falling foreign investment is hampering any recovery.

RICHARD MARTIN: That forecast is a bit of a rude shock at the end of a pretty good second quarter
so I think this World Bank report is the first big negative report we have had out in almost three
months.

What it seems to be indicating is that they're worried about, we're not getting global finance
working as well as it should and we won't get out of this recession until we start to get a better
flow of capital inside markets and across borders.

They're starting to ask questions, which a lot of people are asking, is what happens after the
fiscal stimulus? If we don't get a private sector lift, do governments have enough money to come
back in with another injection into the economy and the answer for many countries is, no they
don't.

PETER CAVE: Richard Martin from the Asian business consultancy IMA Asia, ending that report from
Sue Lannin.