BEIJING: Countries could move towards trade protectionism, and higher unemployment could lead to social and political unrest as the global economic crisis worsens next year, the World Bank's president warned yesterday.

The 'first six months of 2009 will be very difficult', said Mr Robert Zoellick, adding that he is most concerned about the poorest among the world's developing nations, as they will be the 'hardest hit and have the least cushion'.

The World Bank is trying to use its resources to help the most vulnerable, but 'cooperative actions between governments are now more important than ever', he told a press conference at the end of his first day of meetings with Chinese leaders to discuss the global downturn and China's response.

Yesterday, he met Vice-Premier Li Keqiang, Vice-Premier Wang Qishan, Minister of Finance Xie Xuren, Minister of Foreign Affairs Yang Jiechi, and Minister of Commerce Chen Deming.

He is scheduled to hold discussions with other senior officials, including Chinese Premier Wen Jiabao, before he wraps up his official visit to Beijing tomorrow.

Asked to identify some uncertainties which could plague the world economy next year, Mr Zoellick said: 'We're in a very uncertain period where in the private financial markets, the credit system is still not working effectively, and so even though governments have created a lot of liquidity through their monetary policies, financial institutions are still uncomfortable with the counter- party risk.

'It will be important over the course of 2009 to re-establish the private financial institutions' ability to lend, because otherwise you will have a multiple contraction,' he added.

Turning to China, Mr Zoellick said the country would see a 'significant slowdown' next year, given freshly released Chinese economic data which 'affirmed' his assessment.

'This is going to create challenges of unemployment and the movement of people from the coastal areas back to the interior,' he said.

China's annual industrial output growth slowed to 5.4per cent in November, the weakest in at least nine years for a non-holiday month and down from 8.2 in October, the National Bureau of Statistics said yesterday.

China's state-owned enterprises directly under the central government reported a sharp profit decline of 26per cent in the first 11 months of this year, according the state-owned Assets Supervision and Administration Commission, which also released figures yesterday.

On Sunday, President Hu Jintao was reported by state media as saying that next year's employment market would be very serious, 'affected by the international financial crisis'.

The World Bank recently lowered its forecast for China's growth next year from 9.2per cent to 7.5per cent.

Yesterday, the International Monetary Fund (IMF) also slashed its forecast, from 8.5per cent, to 5 or 6per cent.

Speaking in Madrid, IMF managing director Dominique Strauss-Kahn warned of the onset of a global recession, Reuters reported.

He added that declining growth in emerging countries such as China would not make up for recessions in developed countries, but said that the world economy could begin to recover late next year or in early 2010 after 'a very difficult year'.

Chinese economists, however, have said that with recent government stimulus measures, including a four trillion yuan (S$860billion) package aimed at boosting domestic consumption, the country will still be able to maintain 8per cent growth next year.

This is the minimum level at which some say China needs to grow in order to create jobs for the masses of people entering the workforce each year.

'The best way China can help support the world economy at this time is through the efforts China has taken to strengthen its own growth and recovery' and to keep its economy open, said Mr Zoellick.

This is Mr Zoellick's second trip to China since he assumed the World Bank presidency in July last year.

Before arriving in the Chinese capital yesterday, he visited quake-hit Beichuan county in Sichuan province on Sunday for a look at the ongoing reconstruction work.

The World Bank is finalising a US$710million (S$1billion) loan, expected to be considered by the World Bank board for its approval next month, to support China's one trillion yuan earthquake reconstruction effort.

tracyq@sph.com.sg