The World Bank on Tuesday slashed its growth forecasts for this year to levels teetering on the brink of recession for many countries as the effects of central bank rate hikes intensify, Russia’s war in Ukraine continues and the world’s major economic engines sputter.
The development lender said it expected global GDP growth of 1.7 percent this year, the slowest pace outside the 2009 and 2020 recessions since 1993.
In its previous Global Economic Prospects report in June last year, the bank had forecast global growth at 3 percent this year.
Photo: Reuters
It forecast global growth next year to pick up to 2.7 percent — below the 2.9 percent estimate for last year — and said that average growth for the 2020-2024 period would be less than 2 percent — the slowest five-year pace since 1960.
The bank said that major slowdowns in advanced economies, including sharp cuts to its forecast to 0.5 percent for both the US and the eurozone, could foreshadow a new global recession less than three years after the last one.
“Given fragile economic conditions, 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,” the bank said in a statement accompanying the report.
The bleak outlook would be especially hard on emerging market and developing economies, as they struggle with heavy debt burdens, weak currencies and income growth, and slowing business investment that is forecast at a 3.5 percent annual growth rate over the next two years — less than half the pace of the past two decades, it said.
“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,” World Bank president David Malpass said in a statement.
China’s growth fell to 2.7 percent last year, its second-slowest pace since the mid-1970s after 2020, as “zero COVID-19” restrictions, property market turmoil and drought hit consumption, production and investment, the World Bank report said.
It predicted a rebound to 4.3 percent for this year, but that is 0.9 percentage points below the June forecast due to the severity of COVID-19 disruptions and weakening external demand.
The World Bank said that some inflationary pressures started to abate as last year drew to a close, with lower energy and commodity prices, but warned that risks of new supply disruptions were high, and elevated core inflation might persist.
This could cause central banks to respond by raising policy rates by more than currently expected, worsening the global slowdown, it added.
The report was released as the World Bank’s board this week is expected to consider a new “evolution road map” for the institution to vastly expand its lending capacity to address climate change and other global crises.
The plan would guide negotiations with shareholders, led by the US, for the biggest revamp in the bank’s business model since its creation at the end of World War II.
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