Any fresh setback to a global economy already rapidly weakening as a result of high inflation, interest rates and war could result in a second recession within three years in 2023, the World Bank has warned.
In its half-yearly health check, the Washington-based institution said it had cut its 2023 growth forecast from 2.9% to 1.7% after the risks it identified six months ago all materialised.
The Bank’s global economic prospects report said the tougher than anticipated anti-inflationary measures, persistently high energy prices and continued lockdowns in China had led to a much weaker outlook for this year than it had expected last summer. Almost every advanced country and nearly 70% of emerging and developing countries have had their growth forecasts cut.
Given the fragility of the global economy, the World Bank said 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. Not since the 1930s have two global recessions occurred in the same decade.
The World Bank’s mission is to reduce poverty and its president, David Malpass, said the deterioration in the global economic outlook meant the crisis facing development was intensifying.
“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,” he said.
“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.”
Malpass said the Bank’s latest forecasts pointed to a sharp, long-lasting slowdown, with 2023 likely to be third-weakest year for global growth in the past three decades, overshadowed only by the recessions of 2009 and 2020.
“The deterioration is broad based: in virtually all regions of the world, per capita income growth will be slower than it was during the decade before Covid-19. The setback to global prosperity will likely persist,” the World Bank president added.
Growth in the more prosperous advanced economies is projected to slow from 2.5% in 2022 to 0.5% in 2023, the World Bank said, adding that in the past two decades slowdowns on a similar scale had resulted in global recession.
In the US, growth is forecast to fall to 0.5% in 2023 – 1.9 percentage points below previous forecasts and the weakest performance outside official recessions since 1970. The eurozone is expected to have no growth in 2023 after a 1.9 percentage point cut, while China’s growth forecast has been reduced by 0.9 points to 4.3%.
Excluding China, growth in emerging market and developing economies (EMDEs) is expected to decelerate from 3.8% in 2022 to 2.7% in 2023.
The Bank said that in sub-Saharan Africa – which accounts for about 60% of the world’s extreme poor – growth in per capita income over 2023-24 is expected to average just 1.2%, a rate that could cause poverty rates to rise, not fall. In fragile and conflict-affected countries, per capita incomes are expected to decline by 2024.
Malpass said investment growth in EMDEs was predicted to be 3.5% a year between 2022 and 2024 – half the average rate of increase seen in the previous two decades. Much-needed capital was being diverted to richer countries, he added.
“Total debt among EMDEs is at a 50-year high, and Russia’s invasion of Ukraine has added major new costs. This leaves no room for fiscal support at a time when people are still suffering from Covid-related setbacks in health, education and nutrition,” Malpass said.