Washington - In one of the most dire global forecasts yet, the World Bank on Tuesday predicted that the global economy will shrink 1.7 per cent this year as trade collapses and the banking crisis strikes even the world's poorest countries.

The World Bank more than halved its growth forecast for the developing world to 2.1 per cent - compared to 5.8 per cent recorded in 2008 - and predicted a mild global recovery to 2.3-per-cent growth next year.

Coming ahead of an emergency summit Thursday of the world's 20 major economies, the World Bank warned that any recovery in 2010 was dependent on wealthier nations getting a handle on the financial crisis while rejecting anti-trade measures.

This is not a moment for complacency. It is not a day for expressing false confidence that all has been done that can be done," World Bank President Robert Zoellick said in a speech in London. "It is not a time for narrow nationalist or even regional responses."

The World Bank said that global trade in goods and services will shrink 6 per cent in 2009, the worst contraction since the Great Depression of the 1930s. A number of countries have taken steps to shore up their own struggling industries and increase tariffs despite pledges to reject protectionism.

Zoellick said he expected the Group of 20 (G20) summit to approve a new 50-billion-dollar financing initiative to boost global trade, and the World Bank expects further pledges to a new "vulnerability fund" to help the poorest countries.

The economic forecast represented a dramatic downward revision from the World Bank's last update in November and is even bleaker than the outlook from its sister agency, the International Monetary Fund, which just last week said the global economy would shrink between 0.5 and 1 per cent this year.

The global contraction would be the first since World War II, and any recovery in the next years is expected to be very slow, especially compared with past recessions.

"Even if global growth turns positive again in 2010, output levels will remain depressed, fiscal pressures will mount and unemployment levels will rise further in virtually every country well into 2011," said World Bank analyst Hans Timmer.

While the crisis began in wealthy nations, poor countries have been hard hit as wealthy private investors fled from risky opportunities, while banks in Europe and the United States cut back lending in the face of a near-collapse of their own financial sectors.

Eastern Europe and Central Asia are among the emerging economies that have been hardest hit by the crisis. The region's economy will shrink 2 per cent this year after growth of 4.2 per cent in 2008, the World Bank said.

Governments in the region, many of which already had budget deficits of more than 10 per cent of GDP before the crisis even began, are now looking at critical budget shortfalls.

The G20 leaders are expected to increase the IMF's reserves by as much as 500 billion dollars to help plug those budget holes through emergency loans to developing economies. (dpa)