A second global recession is looming this decade, the World Bank has warned as it cut its growth forecasts for almost all advanced economies this year and next.
World Bank President David Malpass said Russia’s war in Ukraine, stubbornly high inflation and rising global interest rates threatened to add to the “already devastating” legacy of Covid and lockdowns resulting globals.
The institution lowered its global growth forecasts to 1.7% in 2023 and 2.7% in 2024, from previous projections of 3% in both years.
Economists warned that the global economy remained “fragile”, adding: “higher-than-expected inflation, sharp increases in interest rates to contain it, a resurgence of the Covid-19 pandemic or escalating geopolitical tensions could push the global economy into recession.”
This would be the first time since World War II that two global recessions have occurred in the same decade.
The World Bank blamed sharp slowdowns in the United States, the euro zone and China for the downgrades as it cut its growth forecasts for nearly all advanced economies and most developing markets.
Growth in advanced economies is forecast to slow from 2.5% in 2022 to 0.5% in 2023. “Over the past two decades, slowdowns of this scale have portended a global recession,” said the World Bank
“The crisis facing development is intensifying as global growth prospects deteriorate,” Malpass added. “Weak business growth and investment will add to the already devastating underinvestment in education, health, poverty and infrastructure and the growing demands of climate change.”
The World Bank said the Chinese economy has been a driver of global growth in the past three decades, expanding nearly 50 times since 1990 and now accounting for nearly a fifth of global economic output.
But the report has cut its 2022 growth estimate for China to 2.7%, its lowest annual growth rate since the 1970s, with the exception of 2020, when the pandemic hit of covid He also warned about the country’s indebtedness and over-reliance on a faltering construction industry that accounts for more than a quarter of GDP.
More than 70% of emerging and developing economies have also had their growth prospects revised downward. Most smaller currencies have weakened against the dollar over the past year, making it more expensive to borrow capital and import raw materials.
The report predicts that investment in emerging and developing economies over the next two years will grow at less than half the rate that prevailed in the previous two decades. By the end of 2024, it predicted that GDP levels in emerging and developing economies will be about 6% below levels predicted before the pandemic.
The World Bank also pointed to the risk of widespread debt crises in emerging and developing economies, as the strong dollar increased the cost of debt repayment for countries that had borrowed in the currency, such as Ghana, Tunisia and Sri Lanka.
In response to the findings, the World Bank has called for greater investment in emerging and developing markets and faster debt restructuring.
“Although the world is now at a very tight spot, there should be no room for defeatism,” Malpass said. “The report makes clear that there are important reforms that could be implemented now to strengthen the rule of law, improve prospects and build stronger economies.”
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