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World Income Seen To Decline By 3.7%

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World income seen to decline by 3.7%

World income is likely to decline by 3.7 per cent this year on a per capita basis as a result of a global financial crisis that had disproportionately affected livelihoods in the developing world, a team of United Nations economists said on Wednesday.

In a mid-year update on economic prospects for 2009, the economists revised downward an already pessimistic scenario published in January and warned there were “no green shoots to be seen which could signal beginnings of a new spring”.

The team, led by Rob Vos of the UN’s department of economic and social affairs, estimated the world economy would shrink by 2.6 per cent this year. While a mild recovery was possible next year, “risks remain on the downside”.

The report said the spillover of the financial crisis from the developed world had left developing countries, heavily reliant on private capital inflows, particularly vulnerable. It noted that the sharpest drop was in bank lending to emerging economies where inflows of about $400bn in 2007 would turn into a net outflow this year.

It noted there were no international bond issues by African countries in 2008 as a result of the credit crunch and that Kenya, Nigeria, Tanzania and Uganda had all cancelled plans to raise funds in the capital market.

Countries that accumulated large foreign reserves as a safety net were now seeing those funds evaporate. In 2008, developing country reserves totalled $4,000 bn but by this year the reserves of some low-income countries had dropped to below a critical level equal to less than three months of imports.

The authors of the report said recovery would depend on the level of international co-ordination on stimulating the world economy. “We’ve seen a lot of action going on,” Mr Vos said on Wednesday, “but if we want a sustainable way out of this crisis much more has to be done”.

The report echoed recent calls for a UN Global Economic Council to be set up to provide co-ordinated response to global challenges “and set the world on a new but sustainable development path”.

The economists said the prospect that recovery would begin in the second half of 2009 looked increasingly unlikely. It would depend on problems in the financial markets being resolved by mid-year and fiscal stimulus measures taking visible effect during the year. “By May 2009, such conditions were far from present,” the report said.

The CIA World Factbook

GDP (purchasing power parity): $69.49 trillion (2008 est.)

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