The World Bank sharply lowered its growth forecast for the global economy this year as persistently high inflation has elevated the risk of a worldwide recession.
The bank expects global growth to slow to 1.7% in 2023, down from an estimated 3% growth in June. That would mark the third-weakest pace of global growth in nearly three decades, overshadowed only by the 2009 and 2020 downturns, according to the World Bank.
A separate report showed that global inflation while starting to cool, remains historically high.
The international development organization cited a coalescence of high inflation, rising interest rates, lower investment and Russia’s invasion of Ukraine as threats to growth, along with pandemic-related disruptions in China and stress in its real-estate sector.
“Global growth has slowed to the extent that the global economy is perilously close to falling into recession,” the World Bank said in its latest report on global economic prospects. World Bank President David Malpass told reporters Tuesday he is “deeply concerned that the slowdown may persist.”
Rising Rate of Inflation
In the United States, growth will likely slow to 0.5 per cent in 2023, much lower than earlier forecast, while the euro area is to flatline as it battles energy supply disruptions and price hikes related to Russia’s invasion.
China is predicted to expand 4.3 per cent this year, 0.9 points below previous expectations, partly due to lingering pandemic disruptions and property sector weakness.
“The outlook is particularly devastating for many of the poorest economies, where poverty reduction has already halted. Emerging and developing countries are facing a multi-year period of slow growth driven by heavy debt burdens and weak investment,” David Malpass.
Central banks, including the US Federal Reserve, have been hiking interest rates over the past year to fight inflation, but the drag on economies is “set to deepen” as policies take effect, the World Bank said.
“The world’s three major engines of growth — the United States, the euro area and China — are undergoing a period of pronounced weakness, with adverse spillovers for emerging market and developing economies,” the bank added.
For now, inflation has risen, nudged up by pandemic-era support, supply shocks and, in some cases, currency depreciations relative to the US dollar.
Among the hardest-hit areas in Sub-Saharan Africa, which accounts for some 60 per cent of the world’s extremely poor.
Its growth in per capita income over this year and next is expected to average just 1.2 per cent, “a rate that could cause poverty rates to rise, not fall,” said the World Bank.
The report also flagged challenges faced by small states with a population of 1.5 million or less, which have been hurt especially hard by the pandemic.
However, the Washington-based lender called on global central banks to remain alert to the risk that aggressively tightening monetary policy to fight inflation could spill across borders.
The new report called for discussions between central bankers to “help mitigate risks associated with financial stability and avoid an excessive global economic slowdown in the pursuit of inflation objectives.”
Read also; World Bank Slashes China’s Growth Forecast to 2.7%.
