World economy perilously close to recession in 2023
World Bank cut the forecast for world economy to 1.7percent in 2023 from 3percent predicted in June 2022
Regional
Outlooks:
East Asia
and Pacific: Growth is expected to increase to 4.3% in 2023 and to 4.9% in
2024.
Europe and
Central Asia: Growth is expected to slow to 0.1% in 2023 before
increasing to 2.8% in 2024.
Latin
America and the Caribbean: Growth is projected to slow to 1.3% in 2023
before recovering to 2.4% in 2024.
Middle East
and North Africa: Growth is expected to slow to 3.5% in 2023 and 2.7% in
2024.
South Asia: Growth is projected to slow
to 5.5% in 2023 before picking up to 5.8% in 2024.
Sub-Saharan
Africa: Growth is expected to be at 3.6% in 2023 and rise to 3.9% in 2024.
Economists
have warned of a slump in the world economy as countries battle soaring costs
and central banks simultaneously hiked interest rates to cool demand —
worsening financial conditions amid ongoing disruptions from the war in
Ukraine.
According to
the World Bank’s latest Global Economic Prospects report, “global growth is
slowing sharply in the face of elevated inflation, higher interest rates,
reduced investment, and disruptions caused by Russia’s invasion of Ukraine,
according to the World Bank’s latest Global Economic Prospects report.
The global
economy is projected to grow by 1.7% in 2023 and 2.7% in 2024. The sharp
downturn in growth is expected to be widespread, with forecasts in 2023 revised
down for 95% of advanced economies and nearly 70% of emerging market and
developing economies.
Over the
next two years, per-capita income growth in emerging market and developing
economies is projected to average 2.8%- a full percentage point lower than the
2010-2019 average.
In
Sub-Saharan Africa—which accounts for about 60% of the world’s extreme
poor—growth in per capita income over 2023-24 is expected to average just 1.2%,
a rate that could cause poverty rates to rise, not fall.
“The crisis
facing development is intensifying as the global growth outlook
deteriorates,” said World Bank Group President David Malpass.
“Emerging and developing countries are facing a multi-year period of slow
growth driven by heavy debt burdens and weak investment as global capital is
absorbed by advanced economies faced with extremely high government debt levels
and rising interest rates. 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.”
Growth in
advanced economies is projected to slow from 2.5% in 2022 to 0.5% in 2023. Over
the past two decades, slowdowns of this scale have foreshadowed a global
recession.
In the United States, growth is forecast to fall to 0.5% in 2023—1.9 percentage points below previous forecasts and the weakest performance outside of official recessions since 1970. In 2023, euro-area growth is expected at zero percent—a downward revision of 1.9 percentage points. In China, growth is projected at 4.3% in 2023—0.9 percentage point below previous forecasts.
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By the end
of 2024, GDP levels in emerging and developing economies will be roughly 6%
below levels expected before the pandemic. Although global inflation is
expected to moderate, it will remain above pre-pandemic levels.
The report
offers the first comprehensive assessment of the medium-term outlook for
investment growth in emerging market and developing economies. Over the 2022-2024 periods, gross investment in these
economies is likely to grow by about 3.5% on average—less than half the rate
that prevailed in the previous two decades. The report lays out a menu of
options for policy makers to accelerate investment growth.
“Subdued
investment is a serious concern because it is associated with weak productivity
and trade and dampens overall economic prospects. Without strong and sustained
investment growth, it is simply impossible to make meaningful progress in
achieving broader development and climate-related goals,” said Ayhan
Kose, Director of the World Bank’s Prospects Group.
National
policies to boost investment growth need to be tailored to country
circumstances but they always start with establishing sound fiscal and monetary
policy frameworks and undertaking comprehensive reforms in the investment
climate.”
The report
also sheds light on the dilemma of 37 small states—countries with a population
of 1.5 million or less. These states suffered a sharper COVID-19 recession and
a much weaker rebound than other economies, partly because of prolonged
disruptions to tourism. In 2020, economic output in small states fell by more
than 11%— seven times the decline in other emerging and developing economies.
The report finds that small states often experience disaster-related losses
that average roughly 5% of GDP per year. This creates severe obstacles to
economic development.
The
report calls upon the global community to assist small states by maintaining
the flow of official assistance to support climate-change adaptation and help
restore debt sustainability.
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