The World Bank said on Tuesday that the global economy remained “in a state of volatility” and warned of slower growth this year and next as higher interest rates dampen consumer spending and business investment and threaten the stability of the financial system. .
The bank’s lukewarm outlook in its latest World Economic Outlook report reflects global policymakers trying to contain stubborn inflation by raising interest rates amid continuing supply chain disruptions from the aftermath of the pandemic and the war in Ukraine. highlights the predicament faced by
The World Bank expects global growth to slow to 2.1% this year from 3.1% in 2022. This is slightly stronger than the January forecast of 1.7%, but output is expected to rise to 2.4% in 2024, lower than the World Bank forecast. The previous forecast was 2.7%.
“The bright lights of the global economy that we saw earlier this year are fading and we are likely to see gray days ahead,” said Ayhan Kose, deputy chief economist at the World Bank Group.
Kose said the global economy was experiencing a “rapid global slowdown”, with 65% of countries expected to grow slower this year than last year. A decade of debt reliance in low-income countries has exacerbated the problem of poor financial management. According to the World Bank, 14 out of 28 low-income countries are in debt crisis or at high risk of debt crisis.
Optimism about an economic recovery this year has been tempered by recent stress in the US and European banking sectors, which has led to the largest bank failures since the 2008 financial crisis. Concerns over the health of the banking industry have led many financial institutions to back off from providing credit to businesses and individuals, a phenomenon that the World Bank said was likely to further weigh on growth.
The bank also warned that rising borrowing costs in rich countries, including the United States, where overnight interest rates exceeded 5% for the first time in 15 years, are posing further headwinds for the world’s poorest countries.
The report warned that the most vulnerable economies face the risk of a greater financial crisis as a result of rising interest rates. Rising interest rates make it more expensive for developing countries to pay off loan payments or import food if their currencies depreciate.
In addition to the risks posed by rising interest rates, the pandemic and the conflict in Ukraine have combined to reverse decades of progress in reducing global poverty. The World Bank estimated Tuesday that incomes in the poorest countries in 2024 will be 6% lower than in 2019.
“Emerging market and developing countries today are struggling to cope, deprived of the means to create jobs and provide needed services to the most vulnerable populations,” the report said.
The World Bank sees a broader slowdown in advanced economies as well. In the US, growth is expected to be 1.1% this year and 0.8% in 2024.
China is a notable exception to this trend, with its reopening after years of severe COVID-19 lockdowns supporting global economic growth. The bank expects the Chinese economy to grow 5.6% this year and 4.6% next year.
Inflation is expected to remain moderate this year, but the World Bank expects prices to remain above central bank targets in many countries through 2024.
