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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