The World Bank issues a warning that a recession could start in 2023
(This Jan. 10 story has been updated to reflect that the 2023-euro zone GDP prediction now projects flat growth, not 0.5% growth.)
White House – The impact of central bank rate increases is getting worse, Russia’s war in Ukraine is still going on, and the world’s biggest economic engines are sputtering, so the World Bank on Tuesday lowered its growth predictions for 2023 to levels that are teetering on the verge of recession for several nations.
The development lender forecast 2023 global GDP growth of 1.7%, the worst rate since 1993 excluding the recessions of 2009 and 2020. The bank predicted 3.0% global growth for 2023 in its latest Global Economic Prospects report from June 2022.
It predicted that global growth would pick up to 2.7% in 2024, which is less than the 2.9% prediction for 2022, and that average growth for the period of 2020–2024 would be less than 2%, which would be the weakest five-year pace since 1960.
Major slowdowns in advanced countries, including substantial reductions in its prediction for the United States to 0.5% and flat GDP for the eurozone, according to the bank, could herald a new global recession less than three years after the previous one.
“Given fragile economic conditions, any new adverse development — such as higher-than-expected inflation, abrupt rises in interest rates to contain it, a resurgence of the COVID-19 pandemic or escalating geopolitical tensions — could push the global economy into recession,” the bank said in a statement accompanying the report.
The bleak outlook will be especially hard on emerging market and developing economies, the World Bank said, as they struggle with heavy debt burdens, weak currencies, and income growth, and slowing business investment that is now forecast at a 3.5% annual growth rate over the next two years — less than half the pace of the past two decades.
“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,” World Bank President David Malpass said in a statement.
China’s growth in 2022 slumped to 2.7%, its second slowest pace since the mid-1970s after 2020, as zero-COVID restrictions, property market turmoil and drought hit consumption, production and investment, the World Bank report said. It predicted a rebound to 4.3% for 2023, but that is 0.9 percentage point below the June forecast due to the severity of COVID disruptions and weakening external demand.
The World Bank noted that some inflationary pressures started to abate as 2022 ended, with lower energy and commodity prices, but warned that risks of new supply disruptions were high, and elevated core inflation may persist. This could cause central banks to respond by raising policy rates by more than currently expected, worsening the global slowdown, it added.
The bank called for increased support from the international community to help low-income countries deal with food and energy shocks, people displaced by conflicts, and a growing risk of debt crises. It said new concessional financing and grants are needed along with the leveraging of private capital and domestic resources to help boost investment in climate adaptation, human capital and health, the report said.
The report comes as the World Bank’s board this week is expected to consider a new “evolution road map” for the institution to vastly expand its lending capacity to address climate change and other global crises. The plan will guide negotiations with shareholders, led by the United States, for the biggest revamp in the bank’s business model since its creation at the end of World War Two.
