According to the latest Global Economic Prospects Report from the World Bank, global growth has “slowed sharply” due to high inflation, increased interest rates, decreased investment, and disruptions caused by the Russia-Ukraine Crisis.
“Given the fragile economic conditions, a new adverse development, such as higher than expected inflation, abrupt increases in interest rates to control it, a resurgence or the Covid-19 Pandemic, could push the global economies into recession”.
Global growth is expected to be 1.7% in 2023 and 2.7% in 2024. The report states that the sharp decline in growth will be widespread. Forecasts for 2023 have been revised downwards for 95 percent of advanced and 70 percent of emerging and developing economies.
The projected average per capita income growth for emerging markets and developing countries over the next two-year period is 2,8 percent, an entire percentage point lower than the average from 2010-2019.
The report shared that the growth in income per capita for Sub-Saharan Africa, which accounts for 60 percent of the world’s extreme poor, is only expected to average 1.2 percent over the period 2023-24. This rate could lead to poverty rates rising rather than falling.
The global outlook for growth is deteriorating, and the development crisis is intensifying.
“Emerging countries and developing nations are experiencing a period of low growth for several years due to heavy debt loads and poor investment. Global capital is being absorbed by advanced economies with high government debt levels and rising interest rates.”
“Weaknesses in business investment and growth will compound already devastating reversals of education, health, and poverty as well as the growing demands of climate change.”
The report states that growth in advanced economies will slow down from 2,5% in 2022 to 0,5% in 2023. In the last two decades, this kind of slowdown has been a sign that a global economic recession is coming.
The US growth rate is expected to drop to 0.5 percent in 2023, a decline of 1.9 percentage points from previous estimates and the lowest performance outside official recessions since the 1970s. In 2023, the eurozone is forecast to grow at zero percent – a downward revision of 1.9 percentage points. Growth in China is forecast at 4.3 percent by 2023 and a 0.9-percentage point decrease from previous estimates.
Except for China, the growth rate in emerging markets and developing economies will slow from 3.8 percent in 2022 to 2.7 percent in 2023. This is due to significantly lower external demand, high inflation, currency appreciation, tighter financial conditions, and many other domestic factors.
By the end of 2024, the GDP in emerging and developing countries will be approximately 6 percent lower than expected before the pandemic. “Global inflation will moderate but remain higher than pre-pandemic levels.”
Investment growth in the medium-term
This report is the first to assess investment growth prospects in emerging markets comprehensively.
These countries’ average gross investment rate is expected to be around 3.5 percent in 2022-2024, less than half of the rate in the last two decades. The report highlights several policy options that can be used to boost investment growth.
“Subdued Investment is a Serious Concern because it’s associated with weak productivity, trade and dampens the overall economic prospects.” It is impossible to achieve broader climate and development goals without substantial and sustained growth in investment.
“National policies for boosting investment growth must be tailored to the country’s circumstances, but they always begin with establishing sound fiscal policy and monetary frameworks and undertaking extensive reforms to the investment climate.”
The report sheds light on 37 small states and countries with less than 1.5 million populations. The Covid-19 recession was more severe in these states, and the recovery was much slower than in other economies. This is partly due to prolonged disruptions of tourism. In 2020, the economic output of small states dropped by over 11 percent – seven times more than other emerging and developing economies.
In its call to action, the report called on the global community to help small states maintain the flow of official aid to support climate change adaptation and restore debt sustainability.
The regional outlook of the report
East Asia and Pacific Growth expected to reach 4.3 percent in 2023 and 4.9 percent in 2024
Europe and Central Asia: The growth rate will drop to 0.1% in 2023 before rising to 2.8% in 2024.
Latin America and the Caribbean: The growth rate will drop to 1.3% in 2023 before rising to 2.4% in 2024.
Middle East and North Africa (MENA): The growth rate is expected to drop to 3.5% in 2023 and 2.7% in 2024.
South Asia: The growth rate is expected to drop to 5.5% in 2023 before increasing to 5.8% in 2024.
Sub-Saharan Africa (SSA): The growth rate is forecast to be 3.6 percent in 2023 and 3.9 percent in 2094.