Recession A Looming Threat For Global Economy, 0.5% Growth

WASHINGTON — The U.S. According to the World Bank on Tuesday, the global economy will come “close” to a recession this year, with poorer growth in all of the world’s major economies — the United States, Europe, and China.

The World Bank, which loans money to poorer nations for development projects, said in its annual report that it had cut its expectation for global growth this year by nearly half, to 1.7%, from 3% previously. If that projection is correct, it will be the third-weakest yearly expansion in three decades, trailing only the massive recessions caused by the 2008 global financial crisis and the 2020 coronavirus pandemic.

Though the United States may avoid a  this year — the World Bank anticipates 0.5% growth — global weakness will certainly represent an additional headwind for American businesses and consumers, on top of high prices and higher borrowing rates. The U.S. is also exposed to potential supply chain disruptions if COVID-19 rises or Russia’s war in Ukraine intensifies.

And Europe, which has long been a key supplier to China, will almost certainly suffer if the Chinese economy weakens.

Recession Brings Higher Interest Rates

Rising interest rates in affluent economies such as the United States and Europe will also lure investment money from poorer countries, depriving them of critical domestic investment, according to the World Bank analysis. At the same time, high borrowing rates, according to the analysis, will limit growth in wealthy countries.

“Russia’s invasion of Ukraine has introduced significant new expenses,” World Bank President David Malpass told reporters during a conference call. “The picture is particularly bleak for many of the poorest economies, where poverty reduction has already stalled, and access to electricity, fertilizer, food, and money is likely to remain restricted for some time.”

A worldwide slowdown would be especially hard on poorer countries like Saharan Africa, which is home to 60% of the world’s impoverished. The World Bank forecasts a 1.2% growth in per capita income in 2023 and 2024, which is so slow that poverty rates may rise.

“Weaker development and business investment will make the already terrible changes in education, health, poverty, and infrastructure, as well as the growing needs of climate change, even worse,” Malpass said. “To deal with the size of these problems, we will need a lot more money for development and global public goods.”

Along with pursuing fresh money to lend more to poorer nations, Malpass stated that the World Bank is working to enhance loan terms to boost debt transparency, ” particularly for the growing number of poor countries at high risk of debt distress.”

The news comes right after the head of the world’s lending organization, the International Monetary Fund, Kristina Georgieva, made a similarly negative prediction. On CBS’ “Face the Nation,” Georgieva predicted that one-third of the world would enter a recession this year.

It will Be A Tough Year

Georgieva said, “This will be a tougher year for most of the world’s economies than the one we’re leaving behind.” “Why? Because the three major economies — the United States, the European Union, and China — are all slowing simultaneously.”

According to the World Bank, the European Union’s economy will contract next year after expanding by 3.3% in 2022. It says that China will grow at an annual rate of 4.3%, which is almost 1% less than what was originally predicted and is about half of what Beijing did in 2021.

The bank forecasts emerging countries to perform better in a recession, with a growth rate of 3.4% this year, the same as in 2022 but less than half that of 2021. Brazil’s growth is expected to decline to 0.8% in 2023.
In Pakistan, the economy is expected to grow by only 2% this year, or one-third of last year’s rate.

Other economists have made grim forecasts for this recession, though most are less dire. JPMorgan economists think that advanced countries and the world will have slow growth this year, but there will not be a global recession. The bank forecast last month that falling inflation would boost consumers’ ability to spend and drive growth in the United States and internationally.

“The global expansion will be twisted but not broken by 2023,” according to JPMorgan research.

SOURCE – (AP)