Washington, 3 December 1998 (RFE/RL) -- The global economy took a bigger hit than anyone expected from the financial crisis that began in Asia last year and spread to Russia this year, says the World Bank, adding that it's too soon to tell if a world-wide recession is in store in 1999.
In releasing it's annual report on Global Economic Prospects, the bank lowered its world-wide per capita growth forecast for this year to less than one-half percent (0.4) -- compared to last year's 3.2 percent -- and projects that global growth in 1999 will be just 1.9 percent.
The Russian crisis has been a major part of the global output downturn and the report says the potential for spillover effects within the region of Central and East Europe and Central Asia remains high in the near term.
But in the entire region, only four of the 25 countries will have negative growth rates this year -- Russia, Ukraine, Romania and the Czech Republic.
The rest of the nations in the region, according to the World Bank's latest forecast, can expect positive growth rates this year, ranging from 10 percent in Albania and Georgia to under one-half percent in Kazakhstan.
But Russia, Romania and Ukraine -- with expected negative growth rates ranging from 4.7 to 5 percent -- pull the entire region down to a negative 0.4 percent economic output growth this year and an even deeper negative 0.6 percent in 1999.
Excluding Central/East Europe and the Baltics, the countries of the former Soviet Union will have a negative 3.7 percent growth rate this year and an even worse negative 4.3 percent next year.
The bank's report says the 30 percent decline in oil prices and similar drops in metals and agricultural-resource prices has pushed Russia's current account into deficit, with 25 percent of the government's revenues tied to oil and gas sales.
It says that resource-dependent Azerbaijan, Kazakhstan and Uzbekistan are being hurt by this as well.
The bank says that to illustrate how the crisis impacts all of Russia's neighbors, it notes that terms of trade -- an index of export prices compared to import prices and GDP (gross domestic product) figures -- among CIS countries are down an estimated 13.5 percent in 1998 or 1.5 percent of total GDP. Central European countries and Turkey, in contrast, saw a six percent gain in terms of trade in 1998 or two percent of GDP.
The main indirect spillover of the Russian crisis impacting developing and transition countries around the world is the reduced availability of private capital and the increased cost of borrowing.
One of the studies authors, World Bank senior economist Mick Riordon, told a press conference that flows of private capital in August and September were running 40 percent below earlier monthly averages. While there has been a pick-up in October and November -- not covered by the World Bank report -- Riordon says getting capital flows moving again is important to help keep from going into a global recession.
Interestingly, the report says that in Central and Eastern Europe, most countries responded to the dramatic ebbs and flows of capital funds with "prudent" policies and thus avoided the worst effects of the crisis. It singled out Poland and the three Baltic countries as nations which had effectively avoided capital outrushes and currency declines.
World Bank Senior Vice President and Chief Economist, Joseph Stiglitz, says the report shows that 1998 and 1999 will be very difficult years, especially for developing and transition nations.
However, he told a press conference, there is optimism because good policies are being adopted and global efforts -- like those spearheaded by the G-7 group of major industrial nations -- to reform some of the global financial architecture and better manage the quick and erratic flows of private capital that was at the heart of most of the recent crises.
It's like building a series of dams on a river to intervene and manage the flow of water moving from the mountain top to the sea, says Stiglitz. The same amount of water eventually gets to the sea, but it is harnessed so that instead of huge swings between droughts and damaging floods, the water is harnessed into a constant positive force.
While the bank can't predict when the world economy will fully recover from the current downturn, says Stiglitz, it's important to remember that there have been crises before and the world has always recovered from them.