Fall in global growth rate hampering development

The global economy is projected to grow by 1.7 per cent in 2023 and 2.7 per cent in 2024. The sharp downturn is expected to be widespread with forecast for 2023 revised down for 95 per cent of advanced economies and nearly 70 per cent of emerging markets and developing economies.

Over the next two years, the percapita income growth in the emerging market and developing economies is projected to average 2.8 per cent—a full percentage point lower than the 2010-2019 average. In Sub-Saharan Africa—which accounts for about 60 per cent of the world's extreme poor—growth in per capita income over 2023-24 is expected to average just 1.2 per cent, a rate that could cause poverty rates to rise, not fall.

"The crisis facing development is intensifying as the global growth outlook deteriorates," said World Bank Group President David Malpass.

"Emerging and developing countries are facing a multi-year period of slow growth driven by heavy debt burdens and weak investment as global capital is absorbed by advanced economies faced with extremely high government debt levels and rising interest rates. 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."

Growth in advanced economies is projected to slow from 2.5 per cent in 2022 to 0.5 per cent in 2023. Over the past two decades, slowdowns of this scale have foreshadowed a global recession. In the United States, growth is forecast to fall to 0.5 per cent in 2023—1.9 percentage points below previous forecasts and the weakest performance outside of official recessions since 1970. In 2023, euro-area growth is expected at zero percent—a downward revision of 1.9 percentage points. In China, growth is projected at 4.3 per cent in 2023—0.9 percentage point below previous forecasts.

Excluding China, growth in the emerging market and developing economies is expected to decelerate from 3.8 per cent in 2022 to 2.7 per cent in 2023, reflecting significantly weaker external demand compounded by high inflation, currency depreciation, tighter financing conditions, and other domestic headwinds.

By the end of 2024, GDP levels in emerging and developing economies will be roughly six per cent below levels expected before the pandemic. Although global inflation is expected to moderate, it will remain above pre-pandemic levels.

The report offers the first comprehensive assessment of the medium-term outlook for investment growth in emerging market and developing economies. Over the 2022-2024 period, gross investment in these economies is likely to grow by about 3.5 per cent on average—less than half the rate that prevailed in the previous two decades. The report lays out a menu of options for policy makers to accelerate investment growth.

It also sheds light on the dilemma of 37 small states—countries with a population of 1.5 million or less. These states suffered a sharper Covid-19 recession and a much weaker rebound than other economies, partly because of prolonged disruptions to tourism. In 2020, economic output in small states fell by more than 11 per cent— seven times the decline in other emerging and developing economies. The report finds that small states often experience disaster-related losses that average roughly 5 per cent of GDP per year. This creates severe obstacles to economic development.

Policymakers in small states can improve long-term growth prospects by bolstering resilience to climate change, fostering effective economic diversification, and improving government efficiency. The report calls upon the global community to assist small states by maintaining the flow of official assistance to support climate-change adaptation and help restore debt sustainability.

The current global economic slowdown cuts across both developed and developing countries, with many facing risks of recession in 2023. Growth momentum has weakened in the United States, the European Union and other developed economies, adversely affecting the rest of the world economy. In the United States, GDP is projected to expand by only 0.4 per cent in 2023 after estimated growth of 1.8 per cent in 2022. Consumers are expected to cut back spending amid higher interest rates, lower real incomes, and significant declines in household net worth. Rising mortgage rates and soaring building costs will continue to weigh on the housing market, with residential fixed investment projected to decline further.

In South Asia, the economic outlook has significantly deteriorated due to high food and energy prices, monetary tightening, and fiscal vulnerabilities. The average GDP growth is projected to moderate from 5.6 per cent in 2022 to 4.8 per cent in 2023. Growth in India is expected to remain strong at 5.8 per cent, albeit slightly lower than the estimated 6.4 per cent in 2022 as higher interest rates and a global slowdown weigh on investment and exports.