Global growth to slow to 2.1% in 2023, with outlook clouded by financial risks
WASHINGTON, June 6, 2023—Global growth has slowed sharply and the risk of financial stress in emerging and developing economies (EMDEs) is intensifying amid high global interest rates.according to the latest World Bank report Global Economic Outlook report.
Global growth is expected to decelerate, from 3.1% in 2022 to 2.1% in 2023. In emerging market and emerging economies other than China, growth is expected to slow to 2.9% this year, from 4.1%. Last year. These forecasts reflect widespread deteriorations.
“The surest way to reduce poverty and spread prosperity is through jobs – and slower growth makes job creation much more difficult. » said Ajay Banga, President of the World Bank Group. “It is important to keep in mind that growth forecasts are not inevitable. We have an opportunity to turn the tide, but it will take all of us working together..”
Most emerging markets have so far suffered only limited damage from recent banking tensions in advanced economies, but they are now navigating dangerous waters. With increasingly tight global credit conditions, one in four emerging economies have effectively lost access to international bond markets. The situation is particularly serious for emerging and emerging economies with underlying vulnerabilities such as low creditworthiness. These economies’ growth projections for 2023 are less than half of those a year ago, making them highly vulnerable to additional shocks.
“The global economy is in a precarious situation” said Indermit Gill, chief economist and senior vice president of the World Bank Group. “Outside East and South Asia, we are far from the dynamism needed to eliminate poverty, fight climate change and rebuild human capital. In 2023, trade growth will be a third lower than in the years before the pandemic. In emerging markets and developing economies, debt pressures are increasing due to rising interest rates. Fiscal weaknesses have already pushed many low-income countries into debt distress. At the same time, financing needs to achieve the Sustainable Development Goals are well above even the most optimistic projections for private investment.
The latest forecasts indicate that the overlapping shocks of the pandemic, the Russian invasion of Ukraine and the sharp slowdown amid strained global financial conditions have caused a lasting setback to EMDE development, one that will persist into the future predictable. By the end of 2024, economic activity in these economies is expected to be around 5% lower than levels projected on the eve of the pandemic. In low-income countries, especially the poorest, the damage is considerable: in more than a third of these countries, per capita income in 2024 will still be lower than 2019 levels. This slow pace of income growth will entrench extreme poverty in many low-income countries.
“Many developing economies are struggling to cope with low growth, persistently high inflation and record debt levels. Yet new dangers, such as the possibility of wider spillovers from renewed financial tensions in advanced economies, could make the situation even worse for these countries. » said Ayhan Kose, Deputy Chief Economist, World Bank Group. “Policymakers in these economies should act quickly to prevent financial contagion and reduce national vulnerabilities in the short term. »
In advanced economies, growth is expected to decelerate from 2.6% in 2022 to 0.7% this year and remain weak in 2024, the report said. After growing 1.1% in 2023, the US economy is expected to decelerate to 0.8% in 2024, mainly due to the lingering impact of the sharp rise in interest rates over the past year and a half. In the eurozone, growth is expected to slow to 0.4% in 2023 from 3.5% in 2022, due to the lagged effect of tightening monetary policy and rising energy prices.
The report also provides an analysis of how increases in US interest rates affect emerging countries. Most of the rise in two-year Treasury yields over the past year and a half has been due to investor expectations for aggressive U.S. monetary policy to control inflation. According to the report, this particular type of interest rate increase is associated with negative financial effects in EMDEs, including a higher likelihood of financial crisis. Moreover, these effects are more pronounced in the most economically vulnerable countries. In particular, frontier markets – those with less developed financial markets and more limited access to international capital – tend to experience outsized increases in borrowing costs; for example, sovereign risk spreads in frontier markets tend to increase more than three times as much as those in other EMDEs.
Additionally, the report provides a comprehensive assessment of the fiscal policy challenges facing low-income economies. These countries are in a desperate situation. Rising interest rates have worsened the deterioration of their fiscal situation over the past decade. Public debt now represents on average around 70% of GDP. Interest payments are eating up a growing share of limited government revenues. Fourteen low-income countries are already in debt distress or at high risk of being so. Spending pressures have increased in these economies. Negative shocks such as extreme weather events and conflict are more likely to plunge households into distress in low-income countries than anywhere else due to limited social safety nets. On average, these countries spend only 3% of their GDP on their most vulnerable citizens, well below the 26% average for developing economies.
Download the full report: https://bit.ly/GEPJune2023FullFR
Download growth data: https://bit.ly/GEPJune2023Data
Download the graphics: https://bit.ly/GEPJune2023AllCharts
East Asia and the Pacific: Growth is expected to reach 5.5% in 2023, then slow to 4.6% in 2024. For more, see regional overview.
Europe and Central Asia: Growth is expected to increase slightly to 1.4% in 2023 before rising to 2.7% in 2024. For more, see regional overview.
Latin America and the Caribbean: Growth is expected to slow to 1.5% in 2023 before rising to 2% in 2024. For more, see regional overview.
Middle East and North Africa: Growth is expected to slow to 2.2% in 2023 before rebounding to 3.3% in 2024. For more, see regional overview.
South Asia: Growth is expected to decline slightly to 5.9% in 2023, then to 5.1% in 2024. For more, see regional overview.
Sub-Saharan Africa: Growth is expected to slow to 3.2% in 2023 and increase to 3.9% in 2024. For more, see regional overview.
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