World Bank says fragile economic conditions might usher in recession


A view of the World Bank group building in Washington.
| Photo Credit:

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 report offers the first comprehensive assessment of the medium-term outlook for investment growth in emerging markets and developing economies. Given fragile economic conditions, any new adverse development such as higher-than-expected inflation, an abrupt rise in key interest rates to contain it, a resurgence of the COVID-19 cases, or escalating geopolitical tensions could push the global economy into recession.

“Investment growth in emerging markets and developing economies (EMDEs) is expected to remain below its average rate of the past two decades. Further adverse shocks could push the global economy into yet another recession. Small states are especially vulnerable to such shocks because of their reliance on external trade and financing, limited economic diversification, elevated debt, and susceptibility to natural disasters,” the report said.

The World Bank said this would essentially mark the first time in more than 80 years that two global recessions have occurred within the same decade. The global economy is projected to grow by 1.7% in 2023 and 2.7% in 2024. Over the next two years, per capita income growth in emerging and developing economies is projected to average 2.8%, which is 100 basis points lower than the 2010-2019 average. In Sub-Saharan Africa, which accounts for about 60% of the world’s extremely 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, World Bank said.

“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,” Mr. Malpass added.

The President added 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.

Further, the report said growth in advanced economies is projected to slow from 2.5% in 2022 to 0.5% in 2023.

In the U.S., growth is forecast to fall to 0.5% in 2023, 1.9 percentage points below previous forecasts. For the euro area, growth is expected at zero percent in 2023— a downward revision of 1.9 percentage points. In China, growth is projected at 4.3% in 2023— 0.9 percentage points below previous forecasts.

By the end of 2024, GDP levels in emerging and developing economies will be roughly 6% below the levels expected before the pandemic. Although global inflation is expected to moderate, it will remain above pre-pandemic levels.

“Over the past two decades, slowdowns of this scale have foreshadowed a global recession,” World Bank said. Against such an economic global outlook, the report calls upon the global community to assist small countries by maintaining the flow of official assistance to support climate-change adaptation and help restore debt sustainability.

Also, the World Bank recommended policymakers in small countries improve long-term growth prospects by bolstering resilience to climate change, fostering effective economic diversification, and improving government efficiency.

Source link

Leave a Response