WB "Global Economy to Grow 1.7% This Year... Nearing Recession Risk" (Summary)

[Asia Economy New York=Special Correspondent Joselgina] The World Bank (WB) has significantly lowered its global economic growth forecast for 2023, citing high inflation, interest rate hikes, and Russia's invasion of Ukraine. It also warned that the global economy is "dangerously close" to a recession.

In the ‘Global Economic Outlook’ released on the 10th (local time), the WB downgraded this year's global economic growth rate to 1.7%. This is 1.3 percentage points lower than the 3.0% forecast in the June report last year. Except for the recession years of 2009 and 2020, it is the lowest growth rate in the past 30 years. The WB diagnosed that "a broad-based deterioration is expected" and "the per capita income growth rate in many regions around the world will be lower than the decade before the COVID-19 pandemic."

[Image source=Reuters Yonhap News]

In this report, the WB lowered growth forecasts for 95% of advanced economies and about 70% of emerging and developing countries compared to previous estimates. The economic slowdown outlook for advanced economies was particularly pronounced. The growth forecasts for the United States and the Eurozone were sharply downgraded to 0.5% and 0%, respectively, which is 1.9 percentage points lower than previous forecasts. As a result, warnings have emerged that the world could enter a new recession in less than three years due to the economic slowdown in major advanced countries. The WB pointed out that such a scale of slowdown over the past 20 years has been a precursor to a global recession.

China is expected to somewhat recover economically this year with a growth rate of 4.3%, compared to the 2% range recorded last year, but this is still 0.9 percentage points lower than the previous forecast. Excluding China, the growth rate of emerging and developing countries is expected to slow from 3.8% last year to 2.7% this year. For these countries, the impact of high inflation, currency depreciation, worsening financing conditions, and a significant weakening of external demand was strongly reflected.

In particular, the WB warned that emerging markets and developing countries are facing difficulties due to high debt burdens, currency weakness, and a slowdown in corporate investment, which could lead to a further deterioration of the global economy. While per capita income growth is declining in many countries, financial conditions are tightening, and more debt crises may follow in various places.

Over the next two years, the per capita income growth rate of emerging and developing countries is projected at 2.8%, which is 1 percentage point lower than the average performance from 2010 to 2019. The region expected to suffer the most is Sub-Saharan Africa, where about 60% of the world's extreme poor live. The WB pointed out that the per capita income growth rate will average only 1.2% this year and next, which could actually increase poverty rates.

The WB stated, "The world's three major growth engines? the United States, the Eurozone, and China?are showing significant weakness, adversely affecting emerging markets and developing countries," and added, "Considering the fragile economic situation, new adverse conditions such as higher-than-expected inflation, rapid interest rate hikes to curb it, COVID-19 resurgence, and escalating geopolitical tensions could push the global economy into a recession." The growth forecast for 2024 was presented at 2.7%. The report did not separately mention the outlook for South Korea.

David Malpass, WB President
Photo by Reuters Yonhap News

The WB identified interest rate hikes as a major risk going forward. It predicted that the economic burden will "intensify" due to the tightening moves by central banks such as the Federal Reserve (Fed) since last year. It estimated that if the average interest rate rises by 1 percentage point, global growth will decline further. While the WB noted that some inflationary pressures, including energy and commodity prices, have recently begun to ease, it expressed concern that core inflation could continue to rise. This could lead central banks to adopt more aggressive tightening than expected, worsening the global economic slowdown.

David Malpass, President of the WB, stated, "Emerging and developing countries are facing years of low growth due to excessive debt burdens and sluggish investment," and "advanced countries are confronted with very high levels of national debt and interest rate hikes."

Meanwhile, following the WB, the International Monetary Fund (IMF) is also expected to revise its economic growth forecast downward again soon. The IMF typically updates its growth forecasts at the World Economic Forum annual meeting (WEF, Davos Forum) held in Davos, Switzerland, every January. Previously, in October last year, the IMF lowered the global economic growth forecast by 0.2 percentage points to 2.7%, citing interest rate hikes in major countries, inflationary pressures, and the war in Ukraine.

In an interview released earlier this month, Kristalina Georgieva, Managing Director of the IMF, said, "This year will be a 'more difficult' year for many parts of the global economy," and "one-third of the world economy will fall into recession." In particular, Georgieva warned that the global economic growth rate could worsen beyond initial forecasts due to China’s abandonment of its ‘zero COVID’ policy at the end of last year.

This content was produced with the assistance of AI translation services.