The skyrocketing cost of living, higher interest rates and disruptions caused by Russia’s invasion of Ukraine has the global economy on a knife edge where it could tip into recession, the World Bank has warned.
In a new report, it said the “fragile” economic conditions could prompt a second recession within the space of just three years.
Any fresh setbacks such as higher than expected inflation, abrupt rises in interest rates to contain it, a resurgence of the Covid-19 pandemic or escalating geopolitical tensions could all result in a global recession this year.
The last time two global recessions occurred in the same decade was in the 1930s.
The World Bank said it had cut its global growth forecast for 2023 from 3 per cent to 1.7 per cent, after the risks it identified six months ago all materialised.
It blamed a tougher response to bring down inflation, soaring energy prices and continued lockdowns in China as some of the reasons for a much weaker outlook for the global economy.
The sharp downturn in growth is also expected to be widespread, with forecasts in 2023 revised down for 95 per cent of advanced economies and nearly 70 per cent of emerging market and developing economies.
Growth in advanced economies is projected to slow from 2.5 per cent in 2022 to just 0.5 per cent in 2023.
Over the past two decades, slowdowns of this scale have foreshadowed a global recession.
World Bank president David Malpass said the “crisis” was intensifying as the global growth outlook deteriorates, particularly for its mission to reduce poverty.
“Emerging and developing countries are facing a multi-year period of slow growth driven by heavy debt burdens and weak investment as global capital is absorbed by advanced economies faced with extremely high government debt levels and rising interest rates,” he said.
“Weakness in growth and business investment will compound the already-devastating reversals in education, health, poverty, and infrastructure, and the increasing demands from climate change.
“The outlook is particularly devastating for many of the poorest economies, where poverty reduction has already ground to a halt; and access to electricity, fertiliser, food and capital is likely to remain limited for a prolonged period.”
Mr Malpass added there was likely to be a sharp, long-lasting slowdown in the global economy overall.
In fact, 2023 was expected to be third weakest year for global growth in the past three decades, with only the recessions of 2009 and 2020 delivering worse outcomes.
“The deterioration is broadbased: In virtually all regions of the world, per capita income growth will be slower than it was during the decade before Covid-19,” he said.
“The setback to global prosperity will likely persist.”
In the US, growth is forecast to fall to 0.5 per cent in 2023 – 1.9 per cent below previous forecasts and the weakest performance outside of official recessions since 1970.
In 2023, euro-area growth is expected at 0 per cent and in China growth is projected at 4.3 per cent in 2023 – 0.9 per cent below previous forecasts.
In Sub-Saharan Africa – which accounts for about 60 per cent of the world’s extreme poor – growth in per capita income over 2023-24 is expected to average just 1.2 per cent, a rate that could cause poverty rates to rise, not fall, the World Bank warned.
“Investment and access to capital are also being constrained by the 50-year high in debt. Today, roughly one in five developing countries is effectively locked out of global debt markets, up from one in 15 in 2019,” Mr Malpass said.
“We’ve strongly advocated for quicker and more efficient debt restructuring processes, but progress remains stalled.
“Many governments face a fiscal crisis and political instability that could push millions more into poverty and could hinder the ability of countries to increase access to electricity, clean water, and foundational learning skills and meet the demands of climate change.”
The number of people suffering “food insecurity” – with famine on the rise – in low-income countries almost doubled from 56 million in 2019 to 105 million in 2022.