World Bank projects weak global growth amid rising interest rates
The World Bank on Tuesday said the global economy is in a “precarious state” and warned of sluggish growth this year and next as rising interest rates slow consumer spending and business investment and threaten the stability of the financial system.
The bank’s lukewarm forecasts in its latest Global Economic Prospects report highlight the predicament facing global policymakers as they try to contain stubborn inflation by raising interest rates as they grapple with the aftermath of the pandemic and the ongoing disruptions of the supply chain as a result of the war in Ukraine.
The World Bank predicted global growth would slow this year from 3.1 percent in 2022 to 2.1 percent. That is slightly stronger than the 1.7 percent forecast in January, but output is expected to rise to 2.4 percent in 2024, weaker than the bank’s forecast. earlier forecast of 2.7 percent.
“Sunbeams in the global economy that we saw earlier this year are fading and gray days are likely ahead,” said Ayhan Kose, deputy chief economist at the World Bank Group.
Mr Kose said the global economy was experiencing a “sharp, synchronized global slowdown” and that 65 percent of countries would see slower growth this year than last year. A decade of bad fiscal management in low-income countries that depended on borrowed money is exacerbating the problem. According to the World Bank, 14 of the 28 low-income countries are in debt or at high risk of debt.
Optimism about an economic recovery this year has been dampened by recent stress in the banking sectors in the United States and Europe, which resulted in the largest bank failures since the 2008 financial crisis. Concerns about the health of the banking system have led many lenders to withdrawing from lending to businesses and individuals, a phenomenon the World Bank said was likely to further depress growth.
The bank also warned that rising borrowing costs in rich countries — including the United States, where overnight interest rates rose above 5 percent for the first time in 15 years — were an additional headwind for the world’s poorest economies.
The most vulnerable economies, the report warned, are at greater risk of financial crises due to rising interest rates. Higher interest rates make it more expensive for developing countries to pay off their loans and, if their currency depreciates, to import food.
In addition to the risks of rising interest rates, the pandemic and conflict in Ukraine have combined to undo decades of progress in global poverty reduction. The World Bank estimated on Tuesday that incomes in the poorest countries would be 6 percent lower in 2024 than in 2019.
“Emerging markets and developing economies are struggling to cope today – bereft of the resources to create jobs and deliver essential services to their most vulnerable citizens,” the report said.
The World Bank is also seeing widespread slowdowns in advanced economies. In the United States, it expects a growth of 1.1 percent this year and a growth of 0.8 percent in 2024.
China is a notable exception to that trend, and the reopening of its economy after years of strict Covid-19 lockdowns is supporting global growth. The bank expects the Chinese economy to grow by 5.6 percent this year and 4.6 percent next year.
Inflation is expected to continue to moderate this year, but the World Bank expects prices to remain above central bank targets in many countries in 2024.