World Bank: Global Economy Struggling Because of High Interest Rates

Global growth will slow from 3.1% in 2022 to 2.1% in 2023. The World Bank explains this in the latest report by Global Economic Prospects: economic growth in the whole world, although better than estimates in the first quarter (from 1.7 to 2.1%), due to increased demand in the USA and China’s recovery from the Covid-19 constraints, will undergo a slowdown that will continue into 2024. This is related to high interest rates that will lead to a high risk of financial stress in emerging market and developing countries.

“The most reliable way to reduce poverty and spread prosperity is to create jobs, and slower growth makes job creation much more difficult,” said Ajay Banga, President of the World Bank. “It is important to take into account that growth forecasts are not destiny. We have the opportunity to reverse this trend, but it will require all of us to work together.”

Growth in advanced economies is expected to slow from 2.6% in 2022 to 0.7% in 2023 and also remain weak in 2024. The US economy is expected to grow by 1.1% in 2023 and by 0.8% in 2024, while in the euro area growth should move from 3.5% in 2022 to 0.4% in 2023, reflecting the delayed effects of a more restrictive monetary policy and higher energy prices.

“The global economy is in a precarious position. Outside of East and South Asia, the situation is still a long way from the dynamism necessary to eradicate poverty, address climate change, and rebuild human capital,” explained Indermit Gill, Chief Economist and Vice President of the World Bank Group. “In 2023, trade will grow at a rate less than a third of its pre-pandemic years. In emerging market and developing economies, debt pressure is mounting due to rising interest rates. Fiscal weakness has already plunged many low-income countries into debt trouble. Meanwhile, the funding needed to achieve the sustainable development goals far exceeds even the most optimistic forecasts of private investment.”