The World Bank has revised its global growth forecast for 2023, citing the resilience of major economies such as the US and China.
According to the bank’s latest Global Economic Prospects report, real global GDP is expected to increase by 2.1% this year, up from the previous forecast of 1.7% in January. However, this growth rate falls short of the 3.1% recorded in 2022.
Despite the upward revision for 2023, the World Bank has reduced its global growth forecast for 2024 to 2.4% from 2.7% in January.
The bank attributes this adjustment to the impact of monetary tightening by central banks and tighter credit conditions, which have led to a decrease in business and residential investments.
World Bank Chief Economist Indermit Gill expressed concerns about the new forecasts, stating that 2023 would be one of the slowest growth years for advanced economies in the past five decades.
Gill also highlighted the setback two-thirds of developing economies face, which are expected to experience lower growth than in 2022. This setback will hinder pandemic recovery efforts, increase poverty levels, and result in higher sovereign debt distress.
While the US and China have shown stronger-than-expected growth, the World Bank has revised its forecasts for these countries. US growth for 2023 is now projected at 1.1%, more than double the previous forecast of 0.5%, while China’s growth is expected to reach 5.6%, compared to the earlier forecast of 4.3%.
However, the bank has lowered its growth projections for the US in 2024 to 0.8% and China’s forecast to 4.6%.
The report also highlights banking sector stress as a contributing factor to tighter financial conditions, which are expected to persist until 2024.
The World Bank warns that a severe credit crunch and broader financial market stress could significantly reduce growth in 2024, potentially pushing the global economy into a recession.
As growth decelerates and labor demand softens, the bank predicts a gradual decline in inflation.
However, it expects core inflation to remain above central bank targets in many countries throughout 2024, while commodity prices are expected to remain stable.