WASHINGTON (`) – The global economy will come “dangerously close” to recession this year, led by weaker growth in all of the world’s leading economies — the United States, Europe and China — the World Bank warned on Tuesday.
In an annual report, the World Bank, which lends poorer countries money for development projects, said it cut its forecast for global growth this year by almost half to just 1.7%, from its previous forecast of 3%. If that forecast proves accurate, it would be the third-weakest annual expansion in three decades, behind only the deep recessions that resulted from the 2008 global financial crisis and the 2020 pandemic.
Though the United States may avoid a recession this year — the World Bank forecasts the US economy will grow 0.5% — global weakness is likely to pose another headwind for America’s businesses and consumers, in addition to high prices and higher lending rates. The United States also remains vulnerable to further supply chain disruptions if COVID continues to rise or the war in Ukraine worsens.
And Europe, long a major exporter to China, is likely to suffer from a weaker Chinese economy.
The World Bank report also found that rising interest rates in developed economies like the United States and Europe are attracting investment capital from poorer countries, thereby depriving them of vital domestic investment. At the same time, the report says, these high interest rates will slow growth in developed countries, while the Russian invasion of Ukraine has kept food prices high around the world.
The effects of a global downturn would hit poorer countries particularly hard in areas like the African Sahara, where the World Bank forecasts that per capita income will rise by just 1.2% in 2023 and 2024. This is such a tepid pace that poverty rates could rise.
“Weakness in growth and business investment will compound already devastating hits in education, health, poverty and infrastructure, as well as the increasing demands of climate change,” said David Malpass, President of the World Bank.
The report follows a similarly bleak forecast a week earlier by Kristina Georgieva, head of the International Monetary Fund, the global credit agency. Georgieva estimated on CBS’ Face the Nation that a third of the world will fall into recession this year.
“This is going to be a tough year for most of the world economy, tougher than the year we are leaving,” Georgieva said. “Why? Because the big three economies – US, EU, China – are all slowing down at the same time.”
The World Bank forecasts that the European Union economy will not grow at all next year after growing 3.3% in 2022. It forecasts that China will grow by 4.3%, almost a percentage point less than previously forecast and about half as fast as Beijing 2021 published.
The bank expects developing countries to fare better, growing 3.4% this year, the same as in 2022, albeit still about half as fast as 2021. It forecasts growth to accelerate Brazil’s will slow to 0.8% in 2023 from 3% last year. In Pakistan, the economy is expected to grow just 2% this year, a third of last year’s pace.
Other economists have also given bleak prospects, although most are not quite so bleak. JPMorgan economists are forecasting slow growth for advanced economies and the world at large this year, but they don’t expect a global recession. Last month the bank forecast that a slowdown in inflation will boost consumer spending power and spur growth in the United States and elsewhere.
“Global expansion will be bent but not broken in 2023,” the JPMorgan report says.
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