World Bank: Recession is a looming threat to the global economy

While the US may avoid a recession this year, the World Bank predicts that global weakness will be another headwind for America’s businesses and consumers.

WASHINGTON. The global economy will be “dangerously close” to recession this year due to weaker growth in all of the world’s leading economies – the US, Europe and China, the World Bank warned on Tuesday.

In an annual report, the World Bank, which lends money to poor countries for development projects, said it had cut its global growth forecast by almost half this year, to just 1.7%, from a previous forecast of 3%. If this forecast proves accurate, it will be the third-weakest annual gain in three decades, second only to the deep recessions triggered by the 2008 global financial crisis and the coronavirus pandemic in 2020.

While the United States may avoid a recession this year — the World Bank predicts the US economy will grow 0.5% — global weakness is likely to create another drag on US businesses and consumers, in addition to higher prices and more expensive borrowing rates. . The United States also remains vulnerable to further supply chain disruptions if COVID-19 continues to rise or Russia’s war in Ukraine escalates.

And Europe, long a major exporter to China, is likely to suffer from a weakening Chinese economy.

The World Bank report also notes that rising interest rates in developed countries such as the US and Europe will attract investment capital from poorer countries, thereby depriving them of critical domestic investment. At the same time, the report says, these high interest rates will slow down growth in developed countries, while Russia’s invasion of Ukraine keeps world food prices high.

“Russia’s invasion of Ukraine has entailed major new costs,” World Bank President David Malpass told reporters by phone. “The outlook is particularly devastating for many of the poorest countries, where poverty reduction has already stalled and access to electricity, fertilizer, food and capital is likely to remain limited for a long period.”

The impact of the global economic downturn will hit poorer countries particularly hard in regions such as the Sahara, where 60% of the world’s poor live. The World Bank projects that per capita income will grow by just 1.2% in 2023 and 2024, a pace so moderate that poverty could rise.

“Weak growth and business investment will exacerbate already disruptive changes in education, health care, poverty and infrastructure, as well as growing needs due to climate change,” Malpass said. “Tackling the scale of these challenges will require significantly more resources for development and global public goods.”

Along with looking for new funding so it can lend to poorer countries, Malpass said, among other things, the World Bank is looking to improve its lending conditions, which will increase debt transparency, “especially for the growing proportion of poor countries that are at high risk of debt distress.” “.

The report follows a similarly grim forecast made a week earlier by Kristina Georgieva, head of the International Monetary Fund, a global credit agency. Georgieva calculated on CBS’ Face the Nation that one-third of the world will fall into recession this year.

“For much of the world economy, this year will be difficult, harder than the year we are leaving behind,” Georgieva said. “Why? Because the three major economies – the US, the EU and China – are slowing down at the same time.”

The World Bank predicts that the European Union economy will not grow at all next year after growing by 3.3% in 2022. He forecasts China to grow 4.3%, almost a percentage point lower than previously forecast and about twice as fast as Beijing’s. in 2021.

The Bank expects developing countries to do better, growing 3.4% this year, the same as in 2022, although still about half of what it was in 2021. He predicts growth in Brazil to slow to 0.8% in 2023, compared to 3% last year. In Pakistan, the economy is expected to grow by just 2% this year, one-third of last year’s pace.

Other economists have also published gloomy forecasts, although most of them are not so gloomy. JPMorgan economists forecast slow growth this year for advanced economies and the world at large, but don’t expect a global recession. The bank predicted last month that slowing inflation would bolster consumers’ ability to spend and spur growth in the United States and elsewhere.

“Global expansion will turn into 2023 – bent but not broken,” JPMorgan said in a report.

Associated Press reporter Fatima Hussain contributed to this report.

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