The global economy is approaching a generalized recession
Posted January 10, 2023, 3:30 pm
The World Bank did not take this step. He is not talking about a recession this year, but expects a sharp decline in his forecasts. It expects global growth of 1.7%, up from the 3% it forecast in June. A small rise should follow in 2024 (2.7%). Forecasts have been lowered for 95% of developed countries and almost 70% of developing and emerging countries.
If the bank’s expectations are correct, 2023 will end with the third weakest growth in almost 30 years, excluding the 2020 global recession caused by the Covid-19 pandemic and the 2009 crisis financial year. no recession is currently envisaged, which for the World Bank is defined by a decline in global per capita income, rather than a two-quarter consecutive decline in gross domestic product (GDP).
However, as the global economy is not immune to a new shock, the Bank is very cautious about maintaining growth in activity.
The Eurozone is facing serious disruptions
“Any other negative events such as higher-than-expected inflation, sharp interest rate hikes to maintain it, resurgence of the Covid-19 pandemic, or increased geopolitical tensions could push the world economy into recession,” the institution emphasizes. “This is the first time since the 1930s that there have been two global recessions in the same decade,” said economist Franziska Ohnsorge, one of the report’s editors.
This is the first time since the 1930s that there have been two global recessions in the same decade.
Franziska Ohnsorge, World Bank Economist
According to economists, central banks have raised interest rates more aggressively than expected, rising interest rates and declining confidence in both businesses and households are contributing to this sharp global slowdown. In industrialized countries, conditions have worsened dramatically.
For example, one of the most aggressive cycles of monetary tightening in recent history in the US should slow activity considerably. GDP growth is expected to be 0.5% this year. The Eurozone is also facing severe disruptions in energy supplies and price increases due to Russia’s intervention in Ukraine. The bank predicts stagnation in 2023.
Sharp slowdown in industrialized countries
Growth in industrialized countries as a whole should be 0.5% this year, after 2.5% in 2022. With the exception of China, whose activity should rise to 4.3% this year, GDP growth in emerging and developing countries should slow from 3.8%. In 2022, it will reach 2.7% in 2023. A sharp slowdown in industrialized countries, combined with high inflation and higher financial costs for the economy, which reduces foreign demand in these countries, weakens their performance.
“Emerging and developing countries are facing a multi-year period of slow growth due to heavy debt burdens and low investment due to the absorption of global capital by advanced economies,” said David Malpass, the bank’s president.
“Weak growth and business investment will compound already devastating failures in education, health, poverty and infrastructure, as well as increasing demands from climate change,” he added.
In about a third of these countries, per capita income is not expected to exceed 2019 levels until at least 2024. Per capita income growth is expected to be slowest where poverty is highest. For example, in Sub-Saharan Africa, home to nearly 60% of the world’s poor, per capita income growth is expected to average only 1.2% in 2023-2024. This is well below the pace required to reduce poverty by 3% by 2030.