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World Bank lowers 2023 Growth Projection Due to "Sharp, Long-Term Slowdown"

 World Bank lowers 2023 growth projection due to "Sharp, Long-Term Slowdown"

Due to increasing inflation, rising interest rates, and Russia's invasion of Ukraine, the World Bank slashed its 2023 GDP projection on Tuesday, warning that the world economy is "perilously near" to entering a recession.

As nations confront rising prices and central banks simultaneously raised interest rates to slow demand, worsening financial conditions were predicted to occur amid continuous interruptions from the conflict in Ukraine.

According to the World Bank's most recent Global Economic Prospects report, this year's growth is expected to be 1.7%, or almost half the rate it forecasted in June, signalling a "sharp, long-lasting slowdown."

Only the global financial crisis of 2009 and the pandemic-induced depression of 2020 rank lower among rates witnessed in almost three decades.

The Washington-based development lender warned that "given the precarious economic conditions, any fresh bad occurrence... could drive the world economy into recession."

These include unexpectedly high inflation, sharp rises in interest rates to control price increases, or a revival of a pandemic.

On Tuesday, David Malpass, the president of the World Bank, told reporters, "I'm concerned, extremely afraid that the slowdown may remain."

"Especially damaging"

While the euro area is expected to stagnate as it struggles with energy supply disruptions and price increases connected to Russia's invasion, growth in the United States is anticipated to dip to 0.5 percent in 2023, significantly lower than earlier projections.

Due in part to ongoing pandemic disruptions and the sluggish property market, China is expected to grow by 4.3 percent this year, which is 0.9 percentage points less than previous projections.

Malpass warned that many of the poorest economies, where efforts to reduce poverty have already stalled, face a particularly dire future.

He continued, "Emerging and developing economies face a multi-year era of poor growth caused by high debt loads and insufficient investment."

Malpass stated that despite the World Bank's efforts to hasten the debt restructuring process, "progress remains blocked."

Ayhan Kose, chairman of the bank's forecasting unit, said that despite the widespread slowdown and sluggish growth, the economy is not yet in a recession.

But in the short term, he told AFP, "the prospect of financial stress, if interest rates go up further at the global level," is something the World Bank is keeping an eye on.

If this occurs and inflation persists, he warned that "it might spark a global recession."

He also cautioned that there might be further debt problems this year if financing circumstances tighten.

Set to intensify

The US Federal Reserve and other central banks have been raising interest rates over the past year to combat inflation, but the World Bank warned that as policies take hold, the economic drag is "likely to worsen."

“The world’s three major engines of growth — the United States, the euro area and China — are undergoing a period of pronounced weakness, with adverse spillovers for emerging market and developing economies,” the bank added.

For now, inflation has risen, nudged up by pandemic-era support, supply shocks and in some cases, currency depreciations relative to the US dollar.

Among the hardest-hit areas is Sub-Saharan Africa, which accounts for some 60pc of the world’s extreme poor.

Its growth in per capita income over this year and next is expected to average just 1.2pc, “a rate that could cause poverty rates to rise, not fall”, said the World Bank.

Small states with a population of 1.5 million or less, which have been particularly heavily hit by the pandemic, were also highlighted as having difficulties in the report.

Additionally, according to the bank, they frequently sustain losses from climate-related catastrophes "that average about 5% of GDP every year."

We need to consider these dangers materialising more frequently in the future, Kose warned, given the greater likelihood of these types of natural disasters.

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