Against the backdrop of what the World Bank sees as worsening economic conditions, it cut its global growth forecasts from predictions it made in the middle of last year. The institution downgraded almost all predictions for advanced economies, reducing its growth outlook for the global economy to 1.7% for this year, shows Global Economic Prospects, its latest report.
Major downgrade from the expected 3%
Earlier, the World Bank predicted the world economy would grow by 3% in 2023. A major downgrade to US economy prospects led the adjustment. The World Bank now predicts just 0.5% growth, down from 2.4% earlier.
The World Bank also slashed its growth outlook for Europe and Central Asia from 1.5% to 0.1%, China for 2023 from 5.2% to 4.3%, and Japan from 1.3% to 1%. The development institution said:
Growth has slowed to the extent that the global economy is perilously close to falling into recession.
It attributed the slow growth to an unexpectedly synchronous and rapid international monetary policy. The slashed estimates would mark “the third weakest pace of growth in nearly three decades, overshadowed only by the global recessions caused by the pandemic and the global financial crisis.”
Recession looms ahead
Global economic growth is so sluggish that the world economy is about to lapse into recession. According to the World Bank, tighter monetary policies may have been needed to rein in inflation, but they have “contributed to a significant worsening of global financial conditions, which is exerting a substantial drag on activity.”
The World Bank also adjusted its 2024 forecasts from 3% to 2.7%.
China’s reopening was faster than expected, which puts its economic recovery in question, the World Bank reported. They believe China’s economic recovery will be delayed if the sudden reopening leads to mass Covid-19 outbreaks that hurt confidence and overwhelm the health sector. The report adds that there is great uncertainty about the pandemic’s development and how businesses, households, and policymakers in China will respond.
According to experts, China can lift global demand and supply all by itself. The issue is what exactly it will do. Commodity prices increase when pressure is exerted on global demand. However, this also means the Federal Reserve will be raising rates for a longer period of time.