In a disturbing revelation that has gotten world leaders ruminating, the World Bank has slashed its 2023 growth forecasts to levels wobbling on the brink of recession for many countries as the impact of central bank rate hikes intensifies.
According to the financial institution, it expected a global GDP growth of 1.7% in 2023, the slowest pace outside the 2009 and 2020 recessions since 1993.
It could be recalled that in its previous Global Economic Prospects report in June 2022, the bank had forecast 2023 global growth at 3.0%.
In a report, the bank forecast global growth in 2024 to pick up to 2.7% — below the 2.9% estimate for 2022 — and said average growth for the 2020-2024 period would be under 2% — the slowest five-year pace since 1960.
It also said major slowdowns in advanced economies, including sharp cuts to its forecast to 0.5% for the United States and flat GDP for the euro zone, could foreshadow a new global recession less than three years after the last one.
A statement accompanying the report said “Given fragile economic conditions, any new adverse development — such as higher-than-expected inflation, abrupt rises in interest rates to contain it, a resurgence of the COVID-19 pandemic or escalating geopolitical tensions — could push the global economy into recession”.
According to the World Bank, the bleak outlook will be especially hard on emerging market and developing economies, as they struggle with heavy debt burdens, weak currencies and income growth, and slowing business investment that is now forecast at a 3.5% annual growth rate over the next two years — less than half the pace of the past two decades.
World Bank President David Malpass said in a statement “Weakness in growth and business investment will compound the already devastating reversals in education, health, poverty and infrastructure and the increasing demands from climate change”.
The World Bank report said China’s growth in 2022 slumped to 2.7%, its second slowest pace since the mid-1970s after 2020, as zero-COVID restrictions, property market turmoil and drought hit consumption, production and investment. It also predicted a rebound to 4.3% for 2023, but that is 0.9 percentage-point below the June forecast due to the severity of COVID disruptions and weakening external demand.
The World’s apex bank also noted that some inflationary pressures started to abate as 2022 drew to a close, with lower energy and commodity prices, but warned that risks of new supply disruptions were high, and elevated core inflation may persist. It added that this could cause central banks to respond by raising policy rates by more than currently expected, worsening the global slowdown.
In the report, the bank called for increased support from the international community to help low-income countries deal with food and energy shocks, people displaced by conflicts, and a growing risk of debt crises. It said new concessional financing and grants are needed along with the leveraging of private capital and domestic resources to help boost investment in climate adaptation, human capital and health.
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