World Bank warns global economy may slide into recession, with 2023 growth nearly halving

By the end of 2024, the economic output of emerging and developing economies will be about 6% below pre-Covid levels while inflation is expected to moderate but remain high

In this Thursday, July 11, 2019 photo, travelers unload goods from a truck they rode into Beni, Congo, the epicenter of the current Ebola epidemic. Deep distrust and pernicious rumors - along with political instability and violence – are severely undermining efforts by public health authorities to trace and vaccinate those who may have come into contact with infected people. (AP Photo/Jerome Delay)
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The global economy is set for a sharp downturn this year, with growth nearly halving and the slowdown affecting all regions, the World Bank has said.

Global growth is projected to decline to 1.7 per cent in 2023, from the 3 per cent forecast six months ago, the Washington-based lender said in its latest Global Economic Prospects report released on Tuesday.

This is the third weakest pace of growth in about three decades, reflecting global monetary tightening, the effects of the Ukraine-Russia war, high inflation levels, worsening financial conditions and weaker growth in the US, China and the euro area.

The growth of advanced economies is expected to slow to 0.5 per cent in 2023, from 2.5 per cent in 2022.

Output in the US, the world's biggest economy, is forecast to fall to 0.5 per cent this year — 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 per cent, a downward revision of 1.9 percentage points.

In China, the world's second-largest economy, growth is projected at 4.3 per cent in 2023, nine tenths of a percentage point below previous forecasts.

“The deterioration is broad-based: in virtually all regions of the world, per-capita income growth will be slower than it was during the decade before Covid-19,” it said.

Slow growth, tightening financial conditions and heavy indebtedness are expected to weaken investment and trigger corporate defaults, the World Bank said.

“Further negative shocks — such as higher inflation, even tighter policy, financial stress, deeper weakness in major economies or rising geopolitical tensions — could push the global economy into recession.”

Inflation, currency depreciation and underinvestment in people and the private sector are eroding average income levels “significantly”.

The impact of the slowdown in the poorest economies has forced poverty-reduction efforts to grind to a halt while total debt among emerging markets and developing economies is at a 50-year high, exacerbated by the effects of Russia’s military offensive in Ukraine, the lender said.

This leaves no funding space to support people still suffering from Covid-related setbacks in health, education and nutrition, the lender said.

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“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 multiyear 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,” he said.

“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.”

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

Smaller states are particularly vulnerable to external shocks. By the end of 2024, economic output in emerging market and developing economies (EMDEs) will be about 6 per cent below levels expected before the pandemic and inflation is expected to moderate worldwide but will remain above pre-pandemic levels.

Over the next two years, per-capita income growth in EMDEs is expected to average only 2.8 per cent — one percentage point less than the 2010-2019 average.

Per capita income growth in EMDEs other than China from 2020 to 2024 is forecast to be roughly the same as per capita income growth in advanced economies, “meaning income convergence is now effectively stalled”, the lender said.

Growth in per capita income from 2023 to 2024 is expected to average 1.2 per cent in sub-Saharan Africa, which could cause poverty rates to rise, not fall in the region that is home to 60 per cent of the world’s poor, the lender said.

The World Bank cited the need to address a shortfall in new investment needed to overcome the reversals hitting development and climate objectives.

Gross investment in EMDEs is projected to grow by 3.5 per cent on average from 2022 to 2024, less than half the average rate of the previous two decades and less than the rate needed to maintain capital stocks.

The sluggish investment environment weakens growth and reduces the capacity of economies to increase median incomes and repay debt, the lender said.

Growth in the Middle East and North Africa region — which expanded by an estimated 5.7 per cent in 2022, its highest in a decade, owing to a rise in energy revenue — is projected to decelerate to 3.5 per cent in 2023 and to 2.7 per cent in 2024.

This is largely due to lower oil prices and a deceleration in net oil-exporting countries, where growth is expected to slow to 3.3 per cent and 2.3 per cent in 2023 and 2024, respectively, from 6.1 per cent in 2022.

The World Bank forecasts oil prices at $88 a barrel in 2023 and $80 a barrel in 2024.

With the global economy under pressure, the World Bank called for measures to boost median incomes in EMDEs.

They include increasing investment to create jobs, raising output and driving a growth in consumption.

It also called for improvements in the business-enabling environment, as well as greater debt transparency and sustainability, especially for the growing share of poor countries at high risk of debt distress.

The World Bank also cited the need to integrate climate mitigation and development efforts in ways that increase energy access and speed up the transition to lower carbon energy.

It called for stronger co-operation to increase cross-border trade, stressing that governments should reduce arbitrary barriers to both imports and exports.

The lender also said protectionist measures such as export bans on food and fertilisers should be removed.

World trade volumes are forecast to fall to 1.6 per cent in 2023 and 3.4 per cent in 2024, from an estimated 4 per cent last year and 10.6 per cent in 2021.

“Even though the world is now in a very tight spot, there should be no room for defeatism,” Mr Malpass said.

“There are significant reforms that could be undertaken now to strengthen the rule of law, improve the outlook and build stronger economies with more robust private sectors and better opportunities for people around the world.”

Updated: January 12, 2023, 4:58 AM
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