Global economy ‘slowing sharply’, projected to grow by 1.7% in 2023, says World Bank

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 the Russia-Ukraine crisis.

The global economy is projected to grow by 1.7 per cent in 2023 and 2.7 per cent in 2024.

The report highlighted that “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”.

The sharp downturn in growth is expected to be widespread, with forecasts in 2023 revised down for 95 per cent of advanced economies and nearly 70 per cent of emerging market and developing economies, the report stated.

“Over the next two years, per-capita income growth in emerging market and developing economies is projected to average 2.8 per cent – a full percentage point lower than the 2010-2019 average. Over the next two years, per-capita income growth in emerging market and developing economies is projected to average 2.8 per cent – a full percentage point lower than the 2010-2019 average. In Sub-Saharan Africa, which accounts for about 60 per cent of the world’s extreme poor, growth in per capita income over 2023-24 is expected to average just 1.2 per cent, a rate that could cause poverty rates to rise, not fall,” highlighted the report.

“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 per cent in 2022 to 0.5 per cent in 2023. Over the past two decades, slowdowns of this scale have foreshadowed a global recession,” he added.

The report also said: “Growth in advanced economies is projected to slow from 2.5 per cent in 2022 to 0.5 per cent in 2023. Over the past two decades, slowdowns of this scale have foreshadowed a global recession.”

In the US, growth is forecast to fall to 0.5 per cent 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 per cent in 2023 – 0.9 percentage point below previous forecasts.

Excluding China, growth in emerging market and developing economies is expected to decelerate from 3.8 per cent in 2022 to 2.7 per cent in 2023, reflecting significantly weaker external demand compounded by high inflation, currency depreciation, tighter financing conditions, and other domestic headwinds.

According to the report, by the end of 2024, GDP levels in emerging and developing economies “will be roughly 6 per cent below levels expected before the pandemic”.

While global inflation is expected to moderate, it will remain above pre-pandemic levels, it forecast.

Medium-term outlook for investment growth

Over the 2022-2024 period, gross investment in emerging markets and developing economies is likely to grow by about 3.5 per cent on average – less than half the rate that prevailed in the previous two decades.

“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,” added Kose.

The report also shed light on the challenges facing 37 small 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 per cent — seven times the decline in other emerging and developing economies.

“Policymakers in small states can improve long-term growth prospects by bolstering resilience to climate change, fostering effective economic diversification, and improving government efficiency,” the report recommended, calling 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.

The report’s regional growth outlook

• East Asia and Pacific: Expected to increase to 4.3 per cent in 2023 and to 4.9 per cent in 2024
• Europe and Central Asia: Expected to slow to 0.1 per cent in 2023 before increasing to 2.8 per cent in 2024
• Latin America and the Caribbean: Projected to slow to 1.3 per cent in 2023 before recovering to 2.4 per cent in 2024
• Middle East and North Africa: Expected to slow to 3.5 per cent in 2023 and 2.7 per cent in 2024
• South Asia: Projected to slow to 5.5 per cent in 2023 before picking up to 5.8 per cent in 2024
• Sub-Saharan Africa: Expected to be at 3.6 per cent in 2023 and rise to 3.9 per cent in 2024