The World Bank has reduced its growth forecast for 2023 significantly, claiming that the world is “perilously near” to a recession. As the Bank cut its global growth expectations from mid-2022 to reflect what it views as broadly deteriorating economic circumstances.
In its newest report, Worldwide Economic Prospects, the international development agency revised virtually all of its estimates for advanced nations throughout the world, lowering its global growth forecast to 1.7% in 2023. The group had predicted that the global economy will grow by 3% in 2023.
The revision was driven by a major decrease in its outlook for the US economy, which now anticipates 0.5% growth instead of 2.4% before. The World Bank reduced its 2023 growth forecast for China from 5.2% to 4.3%, for Japan from 1.3% to 1%, and for Europe and Central Asia from 1.5% to 0.1%.
“Global growth has slowed to the point that the global economy is perilously close to entering a recession,” the World Bank said, blaming the slowdown on a “unexpectedly quick and synchronized” tightening of global monetary policy.
The revised projections would represent “the third poorest rate of growth in nearly three decades, after only the worldwide recessions triggered by the epidemic and the global financial crisis.” Tighter monetary policies from central banks throughout the world may have been required to manage inflation, but they have “contributed to a considerable deterioration of global financial conditions, which is imposing a significant drag on activity,” according to the World Bank.
“The United States, the eurozone, and China are all experiencing considerable weakening, and the accompanying spillovers are worsening additional challenges faced by emerging market and developing economies,” the report stated. The International Monetary Fund reduced its 2024 growth projection to 2.7% from 3% previously.
According to the World Bank, a faster-than-expected reopening in China offers significant uncertainties for the country’s economic recovery. “The economic recovery in China may be slowed if reopening leads in big outbreaks that overload the health sector and erode trust,” according to the research. “There is tremendous uncertainty regarding the pandemic’s development and how Chinese households, companies, and policymakers will respond.”
World Bank President David Malpass stated, “China is a crucial variable, and there may be an upside for China if they push through Covid as swiftly as they appear to be doing.
“China is large enough on its own to significantly boost world demand and supply,” he added.
“One of the concerns for the globe is, which does it do the most — if it largely puts upward pressure on global demand, then commodities prices rise. But it also implies that the Fed will continue to raise interest rates for a longer length of time,” he added.