World Bank warns of global economy downturn as 2023 projection slumps to 1.7%

 By Onome Amuge

The global economy is projected to grow by 1.7 per cent in 2023 and 2.7 per cent  in 2024, a sharp decline from 3 per cent expected six months ago, according to the World Bank’s latest “Global Economic Prospects” report.

The international financial institution disclosed that the sharp downturn in growth is expected to be widespread, with forecasts in 2023 revised down for 95 per cent of advanced economies and nearly 70 pert cent of emerging market and developing economies.

“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.

Given fragile economic conditions, any new adverse development—such as higher-than-expected inflation, abrupt rises in interest rates to contain it, a resurgence of the COVID-19 pandemic, or escalating geopolitical tensions—could push the global economy into recession. This would mark the first time in more than 80 years that two global recessions have occurred within the same decade,” the report stated.

Highlighting the impact of the economic downturn on emerging economies over the next two years, the World Bank Group said per-capita income growth in emerging market and developing economies is projected to average 2.8 per cent which is a full percentage point lower than the 2010-2019 average.

Also in the period under review, the report said that sub-Saharan Africa which accounts for about 60 per cent of the world’s extreme poor is expected to average just 1.2 per cent growth in per capital income, a rate that could further raise the region’s poverty rates.

Commenting on the report, David Malpass, president of the World Bank Group, noted that the crisis facing development is intensifying as the global growth outlook deteriorates.

Malphass explained further that 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.

“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,” he said.

Meanwhile, growth in advanced economies is projected to slow from 2.5 per cent in 2022 to 0.5 per cent in 2023.

In the United States, growth is forecast to decline to 0.5 per cent in 2023,1.9 percentage points below previous forecasts and the weakest performance outside of official recessions since 1970, the report found.

In the same year, euro-area growth is expected at zero percent, a downward revision of 1.9 percentage points. In China, growth is projected at 4.3 per cent in 2023,0.9 percentage point below previous forecasts.

“Excluding China, growth in emerging market and developing economies is expected to decelerate from 3.8% in 2022 to 2.7% in 2023, reflecting significantly weaker external demand compounded by high inflation, currency depreciation, tighter financing conditions, and other domestic headwinds,” the report noted.

According to the World Bank Group, By the end of 2024, GDP levels in emerging and developing economies will be roughly 6 per cent below levels expected before the pandemic.  It noted that although global inflation is expected to moderate, it will remain above pre-pandemic levels.

The report also shared its projection concerning 37 small states (countries with a population of 1.5 million or less).  These states, it said, suffered a sharper COVID-19 recession and a much weaker rebound than other economies, partly because of prolonged disruptions to tourism.

It noted that in 2020, economic output in small states fell by more than 11 per cent,seven times the decline in other emerging and developing economies. It also showed  that small states often experience disaster-related losses that average roughly 5 per cent of GDP per year which  creates severe obstacles to economic development.

To address the economic decline in small states, the World Bank Group advised policymakers to improve long-term growth prospects by bolstering resilience to climate change, fostering effective economic diversification, and improving government efficiency.

The report also urged the global community to assist small states by maintaining the flow of official assistance to support climate-change adaptation and help restore debt sustainability.

Ayhan Kose, director of the World Bank’s Prospects Group, in his remark, said subdued investment is a serious concern because it is associated with weak productivity and trade and dampens overall economic prospects.

Kose noted that without strong and sustained investment growth, it is simply impossible to make meaningful progress in achieving broader development and climate-related goals.

To this end, he said; “National policies to boost investment growth need to be tailored to country circumstances but they always start with establishing sound fiscal and monetary policy frameworks and undertaking comprehensive reforms in the investment climate.”