Higher interest rates and the fallout from this year’s banking crisis will significantly hamper global economic growth, according to the World Bank on Tuesday.
The advanced economies – the United States, Japan, and eurozone nations — are forecast to increase by 0.7% in 2023, down from 2.6% in 2022, according to the institute.
The United States is expected to increase 1.1% in 2023, while the eurozone and Japan are expected to grow less than 1%. In the face of increasing rates, GDP growth in the United States is predicted to slow to 0.8% in 2024.
According to the bank, global growth will slow to 2.1% in 2023, down from 3.1% last year. Emerging and emerging nations are expected to enjoy a 0.6% increase in GDP to 4%, up from the bank’s predictions in January 2023. However, World Bank chief economist Indermit Gill predicted that growth in emerging economies will be less than 3% without China.
This is “one of the weakest growth rates in the last five decades,” according to Gill, who spoke to reporters on Tuesday.
The lower growth predictions reflect broad-based downgrades caused by many overlapping shocks, the most recent of which include spillover effects from the current banking crisis in the United States and advanced nations. Credit conditions have become increasingly tight as a result of the financial crisis, essentially shutting out emerging and developing economies from global bond markets, placing them “in dangerous waters,” according to the bank.
According to the research, fiscal weakness has struck a further blow to low-income nations, with 14 out of 28 currently in financial difficulty or at high risk of debt distress. One-third of these nations’ per capita earnings are predicted to stay unchanged in 2024.
Nonetheless, central banks throughout the world continue to raise interest rates in order to combat chronic inflation.
“The world economy remains hobbled,” the bank warned in its assessment. “Besieged by high inflation, tight global financial markets, and record debt levels, many countries are simply growing poorer.”