1.) Developed economies (The US and Europe) are slowing down. Therefore they are purchasing less heavy equipment which is made more and more by developing countries.
2.) This is leading to a slowdown in developing countries who are export dependent.
3.) The developing countries are experiencing a slowdown right as their capital needs are increasing. Therefore, countries that are in a poor fiscal position will experience increasing trouble regarding financing.
Here's a short version of the report:
As capital became increasingly hard to come by, and uncertainty soared about future demand, there was a sharp decline in production of manufactured goods, and in global trade in these goods. The level of industrial production in rich countries has dropped by 15 percent since August 2008, and that in developing countries, excluding China, by 10 percent.
GDP growth in developing countries is expected to slow sharply, from 5.9 percent in 2008 to 1.2 percent in 2009. However, their performance surpasses rich countries, whose collective GDP is expected to fall 4.5 percent in 2009. Notably, when India and China are removed from the total, developing countries as a group will experience a contraction in GDP of 1.6 percent, a real setback for poverty reduction.
Global GDP growth is expected to rebound to 2% in 2010 and 3.2% by 2011. In developing countries growth is expected to be higher, at 4.4 % in 2010 and 5.7 % in 2011, albeit subdued relative to the robust performance before the current crisis.
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Developing countries are likely to face a dismal external financing climate in 2009, according to the GDF. With private capital flows declining dramatically, many countries will find it difficult to meet their external financing needs, estimated at $1 trillion.
Private debt and equity flows will likely fall short of meeting the external financing needs of developing countries by a wide margin, amounting to a gap estimated to range between $350 billion and $635 billion. Capital flows from official sources, plus tapping foreign reserves, will help fill the gap in some countries, but in others, there will—of necessity—be sharp and abrupt macro adjustments.
A long version is available here.
