In response to what it perceives as generally deteriorating economic conditions, the World Bank lowered its global growth predictions from those it made in mid-2022.
In its most recent report, Global Economic Prospects, the international development organization revised downward nearly all of its projections for developed nations, lowering its growth expectation for the world economy to 1.7% for 2023. The organization had previously predicted that the global economy will grow by 3% in 2023.
The most dramatic decrease to its economic prediction for the United States, from 2.4% to 0.5%, was what caused the change.
The World Bank cut its growth outlook for China for 2023 from 5.2% to 4.3%, Japan from 1.3% to 1% , and Europe and Central Asia from 1.5% to 0.1%.
“Global growth has slowed to the extent that the global economy is perilously close to falling into recession,” the World Bank said, attributing an “unexpectedly rapid and synchronous” global monetary policy tightening behind the sluggish growth.
The downgraded estimates would mark “the third weakest pace of growth in nearly three decades, overshadowed only by the global recessions caused by the pandemic and the global financial crisis.”
The World Bank said that tighter monetary policies from central banks around the world may have been necessary to tame inflation, but they have “contributed to a significant worsening of global financial conditions, which is exerting a substantial drag on activity.”
“The United States, the euro area, and China are all undergoing a period of pronounced weakness, and the resulting spillovers are exacerbating other headwinds faced by emerging market and developing economies,” it said.
The global financial organization adjusted its 2024 forecasts lower as well, to 2.7% from an earlier prediction of 3% growth.
China is ‘key variable’
A faster-than-expected China reopening poses great uncertainty for its economic recovery, the World Bank said in its report.
“The economic recovery in China may be delayed if reopening results in major outbreaks that overburden the health sector and sap confidence,” the report said. “There is significant uncertainty about the trajectory of the pandemic and how households, businesses, and policy makers in China will respond.”
World Bank President David Malpass said on CNBC’s “Closing Bell” on Tuesday that “China is a key variable and there may be an upside for China if they push through Covid as quickly as they seem to be doing.”
“China’s big enough by itself to really lift global demand and supply,” he said. “One of the questions for the world would be, which does it do most if it’s mostly putting upward pressure on global demand, then that raises commodity prices. But it also means that the Fed will be hiking for a longer period of time,” he said.
