World Bank offers dim outlook for the global economy in face of higher interest rates

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The World Bank warns of a significant economic slowdown across the globe this year, citing the influences of high interest rates, the fallout from Russia’s Ukraine invasion, and the ongoing aftermath of the COVID-19 pandemic.

The international anti-poverty agency, which involves 189 countries, forecasts a mere 2.1% expansion of the international economy in 2023, a decrease from the 3.1% growth seen in 2022.

On Tuesday, Indermit Gill, the Chief Economist at the World Bank, presented these findings as “another gloomy report”. According to Gill, the bank anticipates “last year’s sharp and synchronized slowdown” to persist and intensify this year.

“By the end of next year, one third of the developing world will fail to reach their per-capita income level of 2019,” Gill noted.

Nevertheless, the recent Global Economic Prospects report by the bank signifies a slight improvement from the previous forecast in January, which had projected a mere 1.7% growth worldwide for the year.

Major central banks, including the Federal Reserve, have been forcefully elevating interest rates to counter inflation resurgence, propelled by a stronger-than-expected recovery from the pandemic-induced recession, sustained supply deficits, and sudden hikes in food and energy prices due to the Ukraine conflict.

Despite these adversities, the global economy has demonstrated unexpected resilience, allowing the World Bank to anticipate an acceleration of growth to 2.4% in 2024.

In spite of the Fed’s numerous interest rate hikes over the past 15 months, the US has experienced significant job growth — 339,000 new jobs were created in May, surpassing economist predictions. This led the World Bank to raise its US economic growth forecast for this year to 1.1%, more than double its previous January estimate, albeit still modest.

Meanwhile, the eurozone, which consists of 20 euro-using nations, is projected to achieve a collective 0.4% growth this year, a minor improvement from the January forecast which expected no growth for the region this year. Europe has benefited from an unexpectedly warm winter, which mitigated the demand for heating amidst high energy prices caused by the Ukraine conflict.

Following Beijing’s decision to ease its stringent zero-COVID measures late last year, the World Bank has revised its 2023 forecast for China, now expecting a 5.6% growth, a considerable increase from 3% last year. Japan’s growth is expected to decelerate to 0.8% this year from 1% in 2022, while India’s growth is forecasted to slow to a still-impressive 6.3% from 7.2% the previous year.

The World Bank also anticipates a considerable slowdown in global trade this year, along with a significant decrease in energy and other commodity prices for this year and the next.

Frequently Asked Questions (FAQs) about Global Economic Slowdown