The world’s poorest countries are the biggest losers from a global economy failing to cope with the combined impact of the Covid pandemic, Russia’s invasion of Ukraine and the tough anti-inflationary measures taken by central banks, the World Bank has said.
In its half-yearly update, the Washington-based body said the international community was well off course to meet the UN’s 2030 anti-poverty development goals and warned of the risk of a fresh debt crisis for the most vulnerable countries.
The Bank said the global economy was struggling despite slightly revising up its 2023 growth forecasts and no longer fearing a second recession in the space of three years. It said the upbeat news was already in the past and predicted a slowdown in the second half of the year as the impact of higher interest rates in rich countries rippled out to emerging and developing nations.
The global economic prospects report – which focuses primarily on the outlook for the less-advanced economies – forecast world growth of 2.1% in 2023, down from 3.1% in 2022 and 6% in 2021. Compared with forecasts made in January, growth is expected to be 0.4 percentage points higher this year but 0.3 points lower in 2024. Seven in 10 countries would have slower growth in 2023 than in 2022, the report says.
“The world economy is in a precarious position,” said Indermit Gill, the World Bank chief economist. “Outside of east and south Asia, it is a long way from the dynamism needed to eliminate poverty, counter climate change, and replenish human capital.
“In emerging markets and developing economies, debt pressures are growing due to higher interest rates. Fiscal weaknesses have already tipped many low-income countries into debt distress. Meanwhile, the financing needs to achieve the sustainable development goals are far greater than even the most optimistic projections of private investment.”
Gill said emerging market and developing economies (EMDEs) were struggling to cope and the optimism that arose as China came out of lockdown proved to be fleeting.
According to the Bank’s forecasts, growth in EMDEs other than China will fall from 4.1% in 2022 to 2.9% in 2023. Battered by high inflation, rising interest rates and record debt levels many countries were growing poorer. Fourteen low-income countries are already in, or at high risk of, debt distress, up from just six in 2015.
Gill said: “By the end of 2024, per-capita income growth in about a third of EMDEs will be lower than it was on the eve of the pandemic. In low-income countries – especially the poorest – the damage is even larger: in about one-third of these countries, per capita incomes in 2024 will remain below 2019 levels by an average of 6%.”
Wars and extreme weather events linked to the climate crisis were more likely to cause distress in low-income countries than elsewhere because of scanty social safety nets. On average, the poorest countries spend just 3% of GDP on their most vulnerable citizens – compared with an average of 26% average for developing economies.
In advanced economies, the Bank expects growth to weaken from 2.6% in 2022 to 0.7% this year and increase only slightly to 1.2% in 2024. The US is forecast to expand by 0.8%, twice as fast the euro area, with both economies continuing to feel the impact of higher rates.
The World Bank said it would be hard for central banks to hit their inflation targets and tight monetary policy would mean slower growth. Recent runs on US regional banks were likely to lead to tighter credit conditions.
“The possibility of more widespread bank turmoil and tighter monetary policy could result in even weaker global growth. Rising borrowing costs in advanced economies could lead to financial dislocations in the more vulnerable EMDEs.”
