By ABC Washington correspondent Mark Simkin and staffUpdated 10...

By ABC Washington correspondent Mark Simkin and staff

Updated 10 minutes ago

The World Bank has released a new and dire forecast for the global economy in a report for an international meeting of finance ministers.

The bank's forecasters expect the global economy will shrink for the first time since World War II and world trade will post its sharpest drop in eight decades, with the biggest losses in east Asian countries.

The bank's president Robert Zoellic says there needs to be a global solution to prevent possible political unrest in developing countries and what he calls an economic catastrophe.

Meanwhile, Japan has recorded its first current account deficit in 13 years, as the world's second largest economy slides deeper into recession.

The Japanese Government says Asia's largest economy was in the red to the tune of 172.8 billion yen ($2.8 billion) in January.

A year ago, Japan recorded an $18 billion monthly surplus.

Analysts say a massive slump in demand for Japanese exports such as cars and electronics is driving the country deeper into recession.

Exports dived 46.3 per cent from a year earlier, while imports tumbled 31.7 per cent.


Developing decline

The bank has also revealed developing countries face a financing shortfall of $420 billion to $1.09 trillion this year, as private sector creditors shun emerging markets, and only one quarter of the most vulnerable countries have the resources to prevent a rise in poverty.

It says international financial institutions cannot currently cover the shortfall, which includes public and private debt and trade deficits, for these 129 countries, even at the lower end of the range.

"We need to react in real time to a growing crisis that is hurting people in developing countries," Mr Zoellick said.

"This global crisis needs a global solution and preventing an economic catastrophe in developing countries is important for global efforts to overcome this crisis.

"We need investments in safety nets, infrastructure, and small and medium size companies to create jobs and to avoid social and political unrest."

Debt issuance by high-income countries is set to increase dramatically, crowding out many developing country borrowers, both private and public.

Many institutions that have provided financial intermediation for developing country clients have virtually disappeared.

Developing countries that can still access financial markets face higher borrowing costs, and lower capital flows, leading to weaker investment and slower growth in the future.

"When this crisis began, people in developing countries, especially those in Africa, were the innocent bystanders in this crisis, yet they have no choice but to bear its harsh consequences," World Bank managing-director Ngozi Okonjo-Iweala said, in remarks prepared for delivery at a conference in London organised by Britain's Department for International Development.

"We must look at poor people as assets and not liabilities.

"The new globalisation should mean we adopt new ways of caring for our infants, educating our youth, empowering our women and protecting the vulnerable."

The paper said 94 out of 116 developing countries have experienced a slowdown in economic growth, and of these countries, 43 have high levels of poverty.

World Bank chief economist and senior vice-president Justin Yifu Lin said developed countries should spend some of their fiscal stimulus in developing countries as the economic effect could be significant.

"Clearly, fiscal resources do have to be injected in rich countries that are at the epicentre of the crisis," Mr Lin said.

"But channelling infrastructure investment to the developing world, where it can release bottlenecks to growth and quickly restore demand, can have an even bigger bang for the buck and should be a key element to recovery."

Dave R.