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World Bank forecast comes as the WTO cancels a meeting to revive the stalled Doha Round negotiations

LOS ANGELES – 12/31/08 – The volume of global trade is expected to shrink next year for the first time since 1982 due to the continuing global economic slowdown pares away at consumer demand and balloons the cost of trade finance, according to a new report published by the World Bank.

The Global Economic Prospects report says the current global economic crisis “has caused a sharp decline in commodity prices and will likely mean less investment, slower growth and fewer exports for developing countries.”

The World Bank has not ruled out the possibility of a global recession but the report says the worst should be over by 2010.

The report comes as hopes for talks to revive the moribund Doha Round of international trade talks evaporated when World Trade Organization head Pascal Lamy cancelled a meeting last weekend of top trade negotiators in Geneva.

Lamy had hoped to the negotiators would be able to work out the many issues hindering a deal to pump billions of dollars into the struggling global economy through lower trade barriers.

The WTO chief announced the cancellation of the meeting saying he would not recall ministers to renew the negotiations until perhaps sometime next year.

“I think it is the prudent thing to do given the gaps we have seen,” said US Ambassador Peter Allgeier said, commenting on the cancellation of the meeting. “We are deeply disappointed we have not reached that stage yet.”

Brazilian Foreign Minister Celso Amorim said he had favored the proposed meeting, but admitted that such a gathering would be to gain clarity of each other’s positions, and not to hammer out a comprehensive deal.

The financial crisis that has ravaged markets in the world’s more developed countries is now slamming lesser developed hitting developing countries hard.

Over the past month, the World Bank has said it will dole out $14 billion to India over the next three years to facilitate infrastructure development projects and to achieve the Millennium Development Goals. The Bank also said it will join with the Inter-American Development Bank (IDB) to offer about $5.5 billion in loans to Mexico in 2009 to help finance infrastructure, development and anti-poverty programs.

The IDB will inject as much as $2.5 billion into the Mexican deal, with another $1 billion possible.

World Bank analyst Hans Timmer said countries that performed strongly last year are seeing record declines.

"Our forecast is for four-and-a-half percent growth in the developing world, that still seems high but that is more than three percent lower than in 2007, and that is one of the sharpest declines in growth on record," Timmer said.

The decline is blamed on weaker demand from developed countries. That has resulted in a slump in global trade, the first in 25 years. Less trade means losses in manufacturing and export markets, which in turn, have led to growing unemployment.

“The financial crisis is likely to result in the most serious recession since the Great Depression,” said Justin Lin, its chief economist.

"Slower growth means also slower income growth for everybody in developing countries, including the poor, and higher rates of unemployment in developing countries," he said. "That means that the benefits that we have seen over the last five, six years with record growth in developing countries will be on hold for a short period of time."

The report says developing countries in sub-Saharan Africa will enjoy faster economic expansion than most industrialized countries next year. But many countries in Africa and East Asia will face difficulties raising money as credit tightens around the world.

"Things are moving quite rapidly in the wrong direction," Bernard Hoekman, director of the international trade department at the World Bank, said in a recent speech to the Washington International Trade Association. Bank economist Andrew Burns says countries that rely on profits from oil and metals will fare better.

"The positive story there is that when we observe what commodities exporting countries have done over the last 20 years, they've been much more prudent in terms of the management of the windfall revenues they've received as compared with the 1990's and 1980's," said Burns.

Although the recent decline in oil prices has resulted in lower energy and food costs, Burns says poor countries will need help from rich countries to survive the economic fallout.

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