Global GDP will likely be a whopping 5 percentage points below potential, the bank said. Earlier projections by various organizations had forecast 2009 global GDP growth of 1.0-1.9%.

Comment: The forecast represents an enormous decline in global output, and the fact that the bank is predicting a real decline in GDP indicates how much the financial crisis and the accompanying reduction in demand has slowed economies in both the developed and developing worlds. In a robust time, the global economy is capable of growing 4-5% per year.

"We need to react in real time to a growing crisis that is hurting people in developing countries," World Bank Group President Robert B. Zoellick said in a statement. "This global crisis needs a global solution and preventing an economic catastrophe in developing countries is important for global efforts to overcome this crisis." He added that critical investments are needed social safety nets, infrastructure, and in small/medium companies to create jobs.

Further, trade is on a pace to record its largest decline in 80 years, the bank said. The bank did provide a specific GDP forecast for 2009 in the report, but said it would provide one in the weeks ahead.

What's more, industrial output -- the durable, heavy production process of the world, if you will -- could contract as much as 15% below 2008 levels by the middle of 2009.

Developing world hit hard

The developing world will bear the brunt of the record recession, and the bank said they will face a revenue shortfall of $270-700 billion needed to pay for imports and service debts. East Asia is expected to be the hardest hit region, and the bank warned that action is needed by governments and by multilateral lenders "to avoid social and political unrest."

The bank added that 94 of 116 developing countries had experienced a slowdown in growth, with poverty increasing in 43 countries; the number of people living in poverty is expected to increase by 46 million this year, as a result, the bank added.

Economic Analysis: The report underscores the pervasiveness of the commercial slump -- a real GDP decline for the first time since 1945 is likely for 2009, without additional stimulus and actions to increase demand. That's a clarion call for more fiscal stimulus -- and related, stimulative monetary policies -- by the U.S., E.U., Japan, China, and in key developing markets (Brazil, Russia).

Further, the report also underscores another undeniable reality: free markets worked well for about 25 years, but now is the time for collective action to get the global economy growing again. We have entered an activist period that requires a large amount of public policy action.

Markets work well and they are the basis for growth, but they are subject to crises. In other words, every 40-75 years, markets get out of whack: this is one of those times, hence the need for a sustained, international public policy response.