RPT-UPDATE 2-Developing economies to slow sharply -World Bank

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By Lesley Wroughton

WASHINGTON, Dec 9 (Reuters) - The international financial crisis is set to sharply slow growth in emerging and developing economies next year, ending a five-year global commodity price boom, the World Bank said on Tuesday.

The World Bank's 2009 Global Economic Prospects report forecast world growth will weaken to 0.9 percent next year from 2.5 percent in 2008 with simultaneous recessions in the United States, Western Europe and Japan.

The spreading economic downturn will dramatically slow the turbo-charged growth of the past decade in the developing world to 4.5 percent, down from 6.3 percent in 2008 and 7.9 percent in 2007.

World Bank chief economist Justin Lin said the financial crisis had caused the most serious recession since the 1930's and a long and deep contraction cannot be ruled out.

Where possible, developing countries should adopt fiscal stimulus packages, strengthen social programs and invest in infrastructure projects, Lin told a news conference.

Hans Timmer, who is responsible for international economic analyses and forecasts at the World Bank, said a recession in developing countries was unlikely but the slowdown was still significant.

"You don't need negative growth in developing countries to have a situation that feels like recession," Timmer said.

"We estimate at the moment that potential growth on average in the developing world is something like 6.5 percent, so that means when you're growing at 4.5 percent you're growing at 2 percentage points lower than potential growth, which is a situation where you see closures of factories and increasing unemployment," he added.

Timmer said it was hard to predict an economic turnaround but strong underlying growth potential in developing countries is likely to support a rebound in 2010.

"If you look at all the stimulus that is being contemplated now...then it is quite possible that a rebound will come in 2010," he added.

The biggest impact to developing countries will be from slowing investment growth, which is set to decline to 3.4 percent in 2009 from more than 13 percent in 2007. Meanwhile, international trade volumes will fall by 2.1 percent next year, the first drop since 1982, the Bank said.

"Export opportunities for developing countries will fade rapidly because of the recession in high-income countries and because export credits are drying up and export insurance has become more expensive," the report said.

Meanwhile, private debt and equity flows into developing countries should drop to about $530 billion in 2009 from $1 trillion in 2007.