World economic growth seen at 1 percent in 2009

DOHA (Reuters) - World economic growth will slow to 1 percent in 2009 from 2.5 percent this year as the financial crisis bites and the global economy may even contract if stimulus packages prove too little too late, a U.N. report said.

The report on World Economic Situation and Prospects 2009, an advance copy of which was issued at a development conference in Doha on Monday, urged coordinated international stimulus packages to limit the impact of a downturn in Western economies on poorer countries.

Next year’s growth forecasts compare to global growth rates of 3.5 to 4 percent from 2004-2007 and the report said the economic environment for developing countries had deteriorated sharply after early complacency.

“Most developed economies entered into recession during the second half of 2008, and the economic slowdown has spread to developing countries and the economies in transition,” the report said.

“A large-scale fiscal stimulus coordinated among major economies would stave off the worst of the crisis would not prevent a significant slowdown of the global economy in 2009.”

The Doha meeting, aimed at advancing U.N. goals on reducing extreme poverty, has been overshadowed by the financial crisis and the standoff between rich and developing states on reforming the Bretton Woods financial system.

The absence of most Western leaders, as well as the heads of the IMF and World Bank, has raised questions on how much the conference can accomplish.

French President Nicolas Sarkozy was the only Western leader to attend, prompting U.N. Secretary-General Ban Ki-moon to chide leaders of rich states for not attending in greater numbers. Rather than advancing talks after an earlier meeting in Monterey, Mexico in 2002, the U.N. and its aid partners have been focused on holding the line and ensuring aid commitments are kept, given the financial crisis.

The report urged stronger regulation of financial markets institutions, adequate international liquidity provisioning, an overhaul of the international reserve system and more inclusive global economic governance to prevent future crises.

“The crisis should have taken no one by surprise,” it said.

“That analysts and policymakers are now expressing bewilderment at the extent of the crisis suggests not only a gross underestimation of the fundamental causes underlying the crisis but also unfounded faith in the self-regulatory capacity of unfettered financial markets.”

The report said that the outflow of capital from emerging to developed economies continued to be larger than the inflow and sovereign wealth funds of emerging markets grew to some $4 trillion at the end of 2008.

The cost of external borrowing has since risen sharply for developing countries. Stock markets have dropped, while currency and commodity markets have become extremely volatile, the report says. Along with rapidly decelerating export growth, current account balances of many countries have shifted into the red.

“To ensure sufficient stimulus at the global level, it will be desirable to coordinate the fiscal stimulus packages internationally,” the report said.

Writing by Lin Noueihed, Editing by Andy Bruce