The economy is not particularly booming at the moment – this applies equally to industrialized countries as well as emerging and developing countries. And a look into the near future is anything but rosy.
High inflation, rising interest rates and the Russian war of aggression against Ukraine are slowing down global economic growth drastically and in the long term. The World Bank lowered its global growth forecast for this year to 1.7 percent and warned of a possible recession.
“On the Edge of a Knife”
“The world economy is on a knife’s edge,” said forecast chief Ayhan Kose of the German Press Agency in Washington. It is the lowest growth rate outside of a global recession in the past three decades. In practically all regions, per capita income will grow more slowly than before the corona pandemic, according to the Global Economic Prospects report.
World Bank President David Malpass warned that this would hit developing countries particularly hard. “There is a devastating disconnect between the regions that need large amounts of new investment to support growing populations and actual investment flows.” Further negative shocks could plunge the global economy into another recession, it has been warned.
“If we experience another global recession, because we just had one in 2020, then that will be historic,” said economist Kose. It would be the first time since the 1930s that the world economy would experience two recessions in the same decade. The risk is definitely there – even if a recession is not the World Bank’s baseline scenario at the moment: “If it comes to that, I think it will be quite expensive.”
Inflation remains the biggest challenge
The biggest challenge remains the high inflation. The global inflation rate, while weakening, will remain above pre-pandemic levels, the forecast said. Central banks would need to continue raising interest rates or keeping them high to ensure price stability, the World Bank said.
The US Federal Reserve and the European Central Bank have been fighting the stubbornly high prices for months with sharp interest rate hikes. However, this comes at a price: the strict monetary policy increases the risk that the economy will be slowed down so much that the labor market and economy will be stalled.
Kose noted that financial markets have proven resilient. “It doesn’t necessarily mean that things will be nice and well in the future. There could be cracks here and there.” The strict monetary policy can trigger a debt crisis in developing countries, since these are largely financed through loans. “It is important to consider the consequences of these decisions,” said Kose, referring to the central banks. However, this does not mean that central banks in the major economies should give up their main goal: price stability.
Correction down
Last June, the World Bank was still assuming global economic growth of 3 percent for 2023 – so this is a downward correction of 1.3 percentage points. In the industrialized countries, the economy is likely to grow by 0.5 percent on average – 1.7 percentage points less than previously forecast. No growth at all is now expected for the euro zone in 2023 – a downward correction of 1.9 percentage points.
In emerging and developing countries, the World Bank expects growth of 3.4 percent in 2023 – a decrease of 0.8 percentage points. The prospects for the coming year are also gloomy. The World Bank predicts global growth of 2.7 percent for 2024 – 0.3 percentage points less than previously expected.
The forecasts have been revised downwards for 95 percent of the industrialized countries and almost 70 percent of the emerging and developing countries. Investments are now important, said Kose, who is director of the World Bank Prospects Group. Without this, growth will be depressed. The consequences of the climate crisis would then also be more difficult to deal with, and there would be no progress in reducing poverty and inequality. Due to the limited financial leeway in emerging and developing countries, the international community is asked to expand subsidies significantly at this point.
Also small states in view
The report also looks at 37 small states with populations of 1.5 million people or fewer. These countries were hit particularly hard during Corona because tourism is important in island countries such as Mauritius or the Maldives. “Small states are like canaries in a coal mine,” Kose said. You would feel the extent of the crises particularly severely – and could also show what future developments could be.
Small states are different in economic characteristics. But they have characteristics that make them particularly vulnerable to shocks, the report says. These included dependence on imports of essential goods, high concentration of the economy, high levels of debt, dependence on external financing and vulnerability to natural disasters. The economic recovery there is expected to be very slow.
Source: Stern
Jane Stock is a technology author, who has written for 24 Hours World. She writes about the latest in technology news and trends, and is always on the lookout for new and innovative ways to improve his audience’s experience.
