The World Bank has raised its 2023 global growth forecast to 2.1% as many economies, especially the U.S economy continue to exhibit stronger resilience, warning, however, that higher interest rates will cause a larger-than-expected slowdown of global economies next year.
The bank, in its latest ‘Global Economic Prospects’ report released on Tuesday, projected that real global GDP would hit 2.1% this year, from a 1.7% forecast it issued in January but well below the 2022 growth rate of 3.1%.
In the report, the Washington D.C-based multilateral development finance institution cut its 2024 global growth forecast to 2.4% from 2.7% it earlier forecasted in January, citing the continuing effects of tighter monetary policy, particularly in reducing business and residential investment.
It predicted: “Growth over the rest of 2023 is set to slow substantially as it is weighed down by the lagged and ongoing effects of monetary tightening, and more restrictive credit conditions,” it said.
“These factors are envisaged to continue to affect activity heading into next year, leaving global growth below previous projections”, it added.
According to the report, the development finance lender predicted global growth rebounding to 3.0% in 2025.
In January, the Breton Woods institution had warned that global GDP was slowing to the brink of recession, but since then emerging trends in the labour market and consumption in the U.S. had exceeded expectations as has China’s recovery from COVID-19 lockdowns.
Based on the latest upswing in economic activities in the U.S, the World Bank has now projected that the U.S. economy would record 1.1% in 2023, more than double the 0.5% forecast in January, while by its estimate, China’s growth is expected to climb to 5.6%, compared to a 4.3% forecast in January after COVID-reduced growth of 3% in 2022.
It, however, halved its previous 2024 U.S. growth forecast for the U.S. to 0.8%, and cut China’s forecast by 0.4 percentage point to 4.6%.
On the Euro zone economic performance, the bank forecasted an increase to 0.4% growth for 2023 from a flat outlook in January, but the forecast for next year was also cut slightly.
The bank noted that recent banking sector stress was also contributing to tighter financial conditions that will continue into 2024, citing one potential downside scenario where banking stress results in a severe credit crunch and broader financial market stress in advanced economies.
It projected that these ugly trends would likely cut 2024 growth by nearly half to just 1.3% – the slowest pace in 30 years outside of the 2009 and 2020 recessions, cautioning that “in another scenario where financial stress propagates globally to a far greater degree, the world economy would fall into recession in 2024.”
The World Bank predicted that inflation was expected to gradually edge down as growth decelerates and labor demand in many economies softens and commodity prices remain stable, adding that core inflation will remain above central bank targets in many countries throughout 2024.
