September 6, 2023
Economy International

World Economy is Close to Recession

The World Bank has warned that the global economy will come “perilously close” to a recession in 2023, as growth weakens in the United States, Europe, and China. In its annual report, the World Bank has slashed its forecast for global growth this year by nearly half, to just 1.7 percent, from its previous projection of 3 percent. If this forecast proves accurate, it would be the third-weakest annual expansion in 30 years, behind only the deep recessions that resulted from the 2008 global financial crisis and the coronavirus pandemic in 2020.

Though the United States might avoid a recession this year, the World Bank has predicted the US economy will eke out growth of only 0.5 percent. This global weakness will likely pose another headwind for US businesses and consumers, on top of high prices and more expensive borrowing rates. The US would also remain vulnerable to further supply chain disruptions if COVID-19 keeps surging or if the situation in Ukraine worsens.

Europe, which is a major exporter to China, will likely suffer from a weaker Chinese economy. The World Bank report also noted that rising interest rates in developed economies like the United States and Europe will attract investment capital from poorer countries, thereby depriving them of crucial domestic investment. At the same time, the report said, those high interest rates will slow growth in developed countries at a time when Russia’s invasion of Ukraine has kept world food prices high.

“Russia’s invasion of Ukraine has added major new costs,” World Bank President David Malpass said on a call with reporters. “The outlook is particularly devastating for many of the poorest economies where poverty reduction is already ground to a halt and access to electricity, fertiliser, food and capital is likely to remain limited for a prolonged period.”

The impact of a global downturn would fall particularly hard on poorer countries in such, areas as Saharan Africa, which is home to 60 percent of the world’s poor. The World Bank has predicted per capita income will grow just 1.2 percent in 2023 and 2024, which is such a tepid pace that poverty rates could rise. “Weakness in growth and business investment will compound the already devastating reversals in education, health, poverty and infrastructure and the increasing demands from climate change,” Malpass said. “Addressing the scale of these challenges will require significantly more resources for development and global public goods.”

Along with seeking new financing so it can lend more to poorer countries, Malpass said, the World Bank will, among other things, seek to improve its lending terms that would increase debt transparency, “especially for the rising share of poor countries that are at high risk of debt distress”.

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