- Sharp, long-lasting slowdown to hit developing countries hard
- 2023 global growth to slow to 1.7% from 3% expected six months ago
- 2023 forecasts revised downwards for 95% of advanced economies and nearly 70% of emerging market and developing economies.
According to the World Bank’s latest Global Economic Prospects report, 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.
The report warns that 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.
If this happens, this would be the first time in 80 years that 2 global recessions have occurred within the same decade.
Global economy growth projections downgraded
The report indicates that growth forecasts in 2023 have been revised down for 95% of advanced economies and nearly 70% of emerging market and developing economies with the global economy itself projected to grow only 1.7% in 2023 and 2.7% in 2024.
Emerging markets and developing economies seem to be bearing the big brunt of this revised growth forecast with per-capita income growth in emerging markets and developing economies projected to average 2.8% which is 1% lower than the 2010-2019 average of 3.8%.
Most affected would be Sub-Saharan Africa where growth in per capita income over 2023-24 is expected to average just 1.2%, a rate that economists are worried could cause poverty rates to rise, not fall.
As per World Bank Group President David Malpass, one of the key issues for the poor forecast for emerging markets and developing countries is that global capital is absorbed by advanced economies faced with extremely high government debt levels and rising interest rates.
Commenting on the report, Malpass said “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.”
The report also sheds light on the dilemma of 37 small states—countries with a population of 1.5 million or less. These states suffered a sharper COVID-19 recession and a much weaker rebound than other economies, partly because of prolonged disruptions to tourism. In 2020, economic output in small states fell by more than 11%— seven times the decline in other emerging and developing economies.
The report finds that small states often experience disaster-related losses that average roughly 5% of GDP per year. This creates severe obstacles to economic development.
“By the end of 2024, GDP levels in emerging and developing economies will be roughly 6% below levels expected before the pandemic. Although global inflation is expected to moderate, it will remain above pre-pandemic levels.” the report read.
The report offers the first comprehensive assessment of the medium-term outlook for investment growth in emerging markets and developing economies with gross investment in these economies likely to grow by about 3.5% on average which is less than half the rate that prevailed in the previous two decades.
“Subdued investment is a serious concern because it is associated with weak productivity and trade and dampens overall economic prospects. Without strong and sustained investment growth, it is simply impossible to make meaningful progress in achieving broader development and climate-related goals,” said Ayhan Kose, Director of the World Bank’s Prospects Group.
“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.” he added
The report calls upon the global community to assist small states by maintaining the flow of official assistance to support climate-change adaptation and help restore debt sustainability.