Battling the worst financial crisis in nearly 70 years, the world economy will brake sharply in 2009, with the United States, Western Europe and Japan in recession.
Developing economies in Asia, Africa and the Middle East will experience curtailed growth due to plunging commodity prices and a world trade contraction, but likely will escape the red ink.
Evidence of the global slide is still mounting.
Manufacturers around the world are under severe strain and laying off hundreds of thousands of workers; banks are failing, triggering a severe credit crunch; home foreclosures are skyrocketing; and auto sales are plummeting.
Spending slumped
As a result, consumer confidence and spending have slumped, and business investment is drying up.
"Looking at where we are today, the good news, if any, is that we have probably stepped back from the brink of financial catastrophe," said Olivier Blanchard, chief economist for the International Monetary Fund.
Conditions have deteriorated so much since the IMF's semiannual world economic outlook was released in October that it issued an update last month cutting its 2009 forecast for developed countries' economies to a drop of 0.3 percent, from 0.5 percent growth in the previous estimate. Such a decline would mark the first contraction in any year since World War II.
Overall, the IMF now expects the world economy to grow at a 2.2 per cent pace in 2009, down from its October projection of 3.0 per cent.
Developing economies are projected to see GDP growth rate at 5.0 per cent, despite diving commodity prices that have hit oil exporters especially hard.
Meanwhile, the World Bank's global economic prospects report issued in early December predicts that global GDP growth will slip from 2.5 per cent in 2008 to 0.9 per cent in 2009.
Developing countries' growth is expected to decline from 7.9 per cent in 2008 to 4.5 per cent in 2009.
It said the global economy is shif-ting from "a long period of strong growth" led by developing countries to a time of "great uncertainty."
Very significant
"The slowdown in developing countries is very significant because the credit squeeze directly hits investments, which were a key pillar supporting the strong performance of the developing world during the past five years," said Hans Timmer, a senior World Bank economist.
The bank now predicts that world trade, an engine of growth for many developing economies, will contract by 2.1 per cent in 2009, marking it the first time since 1982 that trade will shrink.
The report also said the commodities boom of the past five years, which drove up prices 130 per cent, has come to an end.
Oil prices are likely to average about US$75 a barrel in 2009.
The price of crude has fallen about 70-72 per cent due to the sharp economic downturn since it peaked at US$147.27 a barrel in July.
In its latest economic outlook, the Organisation for Economic Cooperation and Development said economic output will shrink by 0.3 per cent in 2009 for the 30 market democracies that make up its membership, against the 1.4 per cent growth prediction for 2008.
The Paris-based organisation said the United States was expected to contract by 0.9 per cent in 2009 following a 1.4 per cent expansion in 2008.
Output to contract
Japanese output is projected to contract by 0.1 per cent next year, following 0.5 per cent growth this year, while the 15-nation euro-zone will likely shrink by 0.6 per cent in 2009, after 1.0 per cent growth this year.
"Many OECD economies are in, or are on the verge of, a protracted recession of a magnitude not experienced since the early 1980s," OECD chief economist Klaus Schmidt-Hebbel warned.
"As a result, the number of unemployed in the OECD area could rise by eight million over the next two years."
But few things are definite.
"Uncertainties surrounding the projections are exceptionally large," Schmidt-Hebbel said.
"Much will depend on how quickly the financial crisis - the main driver of the downturn - is overcome."
Among the risks are financial institutions suffering further failures and emerging market economies being hit harder by the downturn in global trade.
Positive developments would include central banks shoring up their finances and governments adopting more substantial fiscal stimulus measures, such as higher spending and lower taxes, economists said.
Huge decline
In the United States, a huge decline in wholesale inventories of durable and nondurable goods and in sales provided further evidence that the economy is in a steep recession.
In November, American shoppers handed retail stores their worst results in at least 39 years.
Many analysts believe the current recession, which has already lasted 12 months, will drag until at least the middle of next year.
If it lasts past April, it will become the longest recession in the post World War II period, surpassing recessions in the mid-1970s and early 1980s that each lasted 16 months.
As the US is sinking deeper into economic despair, analysts predict more grim news in the months ahead.
Employers cut payrolls in November at the fastest pace in 34 years as the unemployment rate rose to 6.7 per cent, the highest level since 1993.
The month's 553,000 drop in jobs brought cumulative losses in 2008 to nearly two million, the US Labor Department said, and the total number of unemployed Americans increased to 10.3 million.
Some analysts predict that three million more jobs will be lost before spring 2010 and that the once-humming US economy could stagger backward at a shocking 6.0 per cent rate in 2008's fourth quarter.
"It's a mess," said Mark Zandi, chief economist at Moody's Economy.com.
Survival concerns
"Businesses, battening down the hatches, are concerned about their survival and are cutting workers."
Said Richard Yamarone of Argus Research: "The economy is in a free fall. It is as if someone flicked off the switch on hiring."
In a radical move mid-December, the US Federal Reserve slashed its key interest rate to a record low of zero to 0.25 per cent.
With the Fed's key rate dropping to rock-bottom levels, the central bank is moving into uncharted territory.
To battle the worst financial crisis since the 1930s, President-elect Barack Obama is working on a fiscal stimulus package of at least US$500 billion.
Obama has promised to make the "single largest new investment" in big public works projects as part of his plan to save or create 2.5 million jobs.
As uncertainties on bank solvency and credit supply persist, the federal government has committed more than US$7 trillion in its efforts to contain the deepening financial crisis - although there is widespread agreement it won't really spend anything close to that figure.
- AP
Other economic predictions for 2009:
The Paris-based International Energy Agency says global oil demand shrank in 2008 for the first time since 1983.
The IEA cut its global demand forecast for 2008 by 350,000 barrels a day to 85.8 million barrels a day, down 0.2 per cent from 2007.
The IEA also cut its forecast for global oil demand in 2009, saying it would increase by just 0.5 per cent to 86.3 million barrels a day.
The Middle East and North Africa region appears to have held up well in 2008, growing at 5.8 per cent, but the aggregate number hides big swings in trade, current account positions and external financing requirements, according to the World Bank.
With oil exporters facing diminished revenues in 2009, regional growth is expected to be just 3.9 per cent in 2009.