The World Bank warned Monday that the international economy will shrink by 2.9 per cent this year, a sharper decline than the 1.7 per cent drop predicted in March.

"The need to restructure the banking system, combined with emerging limits to expansionary policies in high-income countries, will prevent a global rebound from gaining traction," Justin Lin, World Bank chief economist, said in a news release.

Less money for everyone

The bank's forecast for 2009 predicts the gross domestic product (GDP) per capita will by fall by $600 US to $8,362 worldwide this year. In other words, the production of goods and services will drop by that amount.

In the "high income" countries, the decline will be $2,164, to $38,470. For Canadians, given that about 60 per cent of GDP is spent on consumption, it means about $1,300 less to spend.

Developing countries could help drive the recovery, but they need capital, and that means a resumption in the flow of credit, the bank said.

But private capital inflows to developing countries are forecast to drop to about 30 per cent of the 2007 level this year. The flow, which peaked at $1.2 trillion US in 2007, will hit $363 billion this year, the bank said.

A drop in capital flows will cut growth, jobs and trade, and hurt the neediest people.

"To prevent a second wave of instability, policies have to focus rapidly on financial sector reform and support for the poorest countries," said Hans Timmer, director of the bank's prospects group.

Global GDP growth will rebound to two per cent in 2010 and 3.2 per cent by 2011.

The bank called for the "quick implementation of detailed reforms" and said governments have to give up ownership stakes in the financial system to make room for private capital.

Like other economic forecasters, it also said the advanced countries will have to unwind the expansion of the money supply and cut deficits "in the medium term," to avoid a debt crisis.