The World Bank has revised its global growth projections for 2023, indicating a more positive outlook for the world economy due to the resilience of major economies such as the United States and China. However, the institution also warned of potential challenges in the coming years, with higher interest rates and tighter credit conditions expected to have a greater impact on future growth.
According to the latest Global Economic Prospects report from the World Bank, real global GDP is now projected to grow by 2.1% this year. This forecast represents an improvement from the 1.7% estimate issued in January, but remains below the growth rate of 3.1% observed in 2022.
While the Bank has raised its growth expectations for 2023, it has simultaneously reduced its forecast for 2024 to 2.4% from the previous 2.7% projection made in January. The revision reflects the delayed effects of monetary tightening by central banks and more restrictive credit conditions, which are hindering business and residential investment.
The World Bank anticipates that these factors will further slow down global growth in the latter half of 2023 and continue into 2024. However, it has released a new forecast for 2025, predicting a global growth rate of 3.0%.
Despite the improved outlook, World Bank Chief Economist Indermit Gill struck a cautionary note, stating that 2023 would still be one of the slowest growth years for advanced economies in the past five decades. Gill added that two-thirds of developing economies are expected to experience lower growth compared to 2022, posing significant setbacks to pandemic recovery efforts and poverty reduction, and increasing concerns about sovereign debt distress.
Gill further emphasized that by the end of next year, approximately one-third of developing countries will not have surpassed their per-capita income levels from the end of 2019. This represents a significant setback of five years for almost a third of the world’s nations.
The World Bank’s earlier warning of a global GDP slowdown bordering on recession has been mitigated by stronger-than-expected labor market performance and consumption in the United States, as well as China’s robust recovery from COVID-19-related restrictions.
The revised forecasts now project U.S. growth for 2023 at 1.1%, more than double the 0.5% projection in January. China’s growth outlook has also improved, with an expected increase to 5.6% compared to the previous 4.3% forecast, following the pandemic-induced growth of 3% observed in 2022.
However, the World Bank has tempered its expectations for the U.S. and China in 2024. The growth forecast for the U.S. has been halved to 0.8%, while China’s projection has been reduced by 0.4 percentage points to 4.6%.
The euro zone received a positive adjustment, with a forecasted growth rate of 0.4% for 2023, compared to the previously stagnant outlook in January. However, the forecast for the following year was slightly downgraded.
In addition, the World Bank highlighted recent stresses in the banking sector, which contribute to tighter financial conditions expected to persist until 2024. The institution presented potential downside scenarios, including severe credit crunches and broader financial market stress in advanced economies. Such situations could result in significantly reduced growth rates, with the possibility of a global recession in 2024.
While the World Bank expects inflation to gradually decline alongside decelerating growth and softened labor demand in many economies, it anticipates that core inflation will remain above central bank targets in several countries throughout 2024.
