World Bank cuts 2023 global growth estimates from 3% to 1.7%, risk of recession

(Il Sole 24 Ore Radiocor) – The World Bank has sharply revised its forecast for global growth in 2023 downwards, cutting them to +1.7% from +3% last June, due to persistent inflation, rising interest rates and the effects of the war in Ukraine. The international institute then expects a moderate recovery of +2.7% in 2024. The World Bank, in Global Economic Prospects, the annual report on the global economic outlook, revised forecasts for almost all developed countries and nearly 70% of emerging and developing countries, with particularly weak growth in the United States and zero in the Eurozone. The trend could get even worse, with a real risk of recessionin the event of a new shock to the economy, caused by a surge in inflation, a new wave of Covid or geopolitical tensions.

More evident slowdown in advanced economies

As explained Ayhan Kose, director of the research office of the World Bank, “this is the weakest growth in the last thirty years, except for the 2008 crisis and the post-pandemic of 2020. The slowdown is general and the evolution of the world economy is complex». In the event of a one percentage point rate hike by the world central banks, Kose added, “the weight on global growth would be 0.6%, thus causing a 0.3% drop in per capita GDP and therefore a global technical recession”. As highlighted by the World Bank, the slowdown will be more evident in developed countries: growth of 0.5% is expected in the United States (compared to 1.9% estimated last June) and zero growth in the Eurozone (again compared to the previous 1.9%). Even emerging countries will not be spared: Chinese growth is now expected at 4.3% (0.9 percentage points less) and other emerging and developed countries should see their economies grow by 2.7%.

Eurozone zero growth in 2023 with high energy and inflation

More specifically, as far as the Eurozone is concerned, the institute has severely cut its estimates and is now expecting zero growth (+1.9% the June estimate). For 2024, the estimate is for growth of 1.6% (against the +1.9% expected in June). In the Eurozone, activity in the first half of 2022 exceeded expectations, with the result that annual growth has been revised to 3.3%. In the second half, however, there was a substantial weakening as a result of the jump in energy prices, supply uncertainties and rising financing costs,” reads the report. The institute reports that “inflation hit record levels after the Russian invasion of Ukraine, leading to cuts in global gas supplies and rising costs which, despite some recent improvements, remain above pre-war levels” . Given all of this, the World Bank expects a contraction in the first half of 2023 and a stabilization in the second half of the year. Inflation should moderate, also due to the drop in energy prices.

Poverty alarm in Sub-Saharan Africa

The institute also expressed concern about the social consequences of the slowdown and in terms of fighting global warming and poverty. In sub-Saharan Africa, where 60% of people considered to be in extreme poverty live, the expected growth will probably be insufficient to fight it effectively: «We expect a growth of 1% of GDP per capita, which is by far lower than that needed to eradicate extreme poverty,” said Kose, explaining that “it will be almost impossible to reduce poverty or even inequality at the levels we would like.

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World Bank cuts 2023 global growth estimates from 3% to 1.7%, risk of recession

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