The World Bank has recently announced that the global economy is in a precarious state due to rising interest rates, which are hindering consumer spending and business investment, and posing a threat to the stability of the financial system. The bank predicts that global growth will slow to 2.1% this year from 3.1% in 2022 and, while this is slightly stronger than its prediction in January of 1.7%, it believes that output will only rise to 2.4% in 2024 (weaker than the previous prediction of 2.7%). Ayhan Kose, Deputy Chief Economist at the World Bank Group, has voiced concerns over the synchronized global slowdown that the world economy is currently experiencing, with 65% of countries believed to be facing slower growth this year than last. The report predicts that incomes in the poorest countries will be 6% lower in 2024 than in 2019, reversing decades of progress in poverty reduction.
The World Bank has noted that rising borrowing costs in developed countries pose an additional headwind for developing economies, particularly for those that are vulnerable, as higher rates make it more expensive for them to service their loan payments and, if their currencies depreciate, to import food. The report highlights the significant risks posed by the pandemic and the conflict in Ukraine, which have combined to complicate already challenging conditions and derail progress of poverty reduction.
The report mentions the widespread slowdowns that are expected in advanced economies. The United States is projected to see growth of 1.1% this year and 0.8% in 2024, while China is the notable exception due to its economy growing 5.6% this year and 4.6% in 2022. However, the bank expects that inflation will continue to moderate throughout the year but believes that prices will remain above the central bank targets in many nations till 2024.
The bank also reveals that 14 of the 28 low-income countries are in high risk of debt distress or in debt distress from a period of poor fiscal management over the past decade, which led to a high borrowing rate. In addition to various challenges, concerns about the banking industry’s health have led many lenders to cut bank credit supply to individuals and businesses.
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