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World economy in worst downturn since Great Depression

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by Kay Mitchell

According to the United Nations, the world economy faces its worst downturn since the 1930s.

The UN expects world economic output to contract by 0.4% in 2009, as a result of a slump among developed countries, such as Europe and the USA.

Should the forecast be correct, it would signify the global economy’s first year of contraction since the 1930s.

However, in stark contrast, the International Monetary Fund (IMF) is forecasting that the overall global economy will grow next year.

A report from the UK, titled ‘World Economic Situation and Prospects 2009’, provides three forecasts for growth in 2009: a baseline forecast of 1% growth, a 0.4% contraction and an optimistic scenario of 1.6% growth.

Rob Vos, co-author of the report and chief economist at the UN Secretariat, told BBC News that the gloomy forecast was a distinct possibility unless financial markets calmed down and bank lending quickly returned to normal levels.

Day by day, we are getting closer to the pessimistic scenario. The last time the world economy contracted was in the 1930s amid the Great Depression, said Mr Vos.

Meanwhile, in related news, Hu Jintao, the Chinese President has warned that his country’s competitiveness could deteriorate as a result of the global financial crisis.

In a report in the official People’s Daily newspaper, Mr Hu said external demand has obviously weakened and China’s traditional competitive advantage is being gradually weakened.

The country has slashed interest rates of late and last month, the Government announced an economic stimulus package worth four trillion yuan (£374 billion, $586 billion) to boost its weakening economy.

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News posted: December 1, 2008

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