The World Bank on Tuesday raised its global growth forecast for 2023 thanks to greater-than-expected flexibility in the U.S., Chinese and other major economies, but said higher interest rates and tighter credit conditions would lead to a significant decline next year.
In its latest report on global economic prospects, the bank added that real global GDP is expected to rise 2.1% this year, up from 1.7% expected by the bank in January, but this percentage is much lower than the growth rate in 2022 of 3.1%.
The bank cut its global growth forecast for 2024 to 2.4% from 2.7% in January, attributed to the continued impact of tightening monetary policy and central banks restricting credit conditions, reducing commercial investment and in the residential sector.
These factors will continue to slow growth in the second half of this year until 2024, but the bank expected global growth for 2025 to rise by 3.0%.
World Bank chief economist Endermit Gill made bleak remarks regarding the new outlook, saying this year would see one of the slowest growths for developed countries in the past five decades.
He added that two-thirds of economies in developing countries will see lower growth than last year, marking a major setback for pandemic recovery, poverty reduction and increasing sovereign debt distress.
“A third of developing countries until the end of next year will not exceed the per capita income levels they had at the end of 2019, a generation told reporters. These five years don’t exist for nearly a third of the world’s nations.”
The World Bank warned in January of a slowdown in global GDP and its approach to the brink of recession but since then a recovery in the U.S. labour market and consumption have exceeded expectations as well as China’s recovery from Covid-19 lockdowns.
Growth in the U.S. this year is expected to reach 1.1%, more than double the forecast of 0.5% in January, while the bank expected growth in China to rise by 5.6% after expectations in January reached 4.3% after Covid-related growth slowed to 3% in 2022.
On the other hand, the bank halved its previous U.S. growth forecast for 2024 to 0.8%, and cut its growth forecast in China by 0.4 percentage points to 4.6%.
The bank raised its forecast for growth in the eurozone to 0.4% this year after forecasting growth to stabilise in January, but slightly lowered its forecast for the region next year.
Recent pressures on the banking sector are also contributing to the difficult financial situation, which will continue until next year, the World Bank said.
It pointed to the possibility of lower growth if banking pressures lead to a severe credit crisis and increased pressure on financial markets in developed countries.
The bank said this is likely to almost halve growth in 2024 to just 1.3% at the slowest pace in the last 30 years, excluding recessions in 2009 and 2020.
“Under another scenario in which financial difficulties are much more exacerbated globally, the global economy could enter a recession in 2024,” the bank added.
The bank said inflation is expected to decline gradually as growth slows, labour demand slows in many economies and commodity prices stabilise.
But it predicted core inflation would remain above the level targeted by central banks in many countries throughout 2024.
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