A second global recession looms this decade, the World Bank has warned as it slashed its growth forecasts for almost all advanced economies this year and next.
World Bank President David Malpass said Russia’s war in Ukraine, stubbornly high inflation and global interest rate rises threatened to add to the “already devastating” legacy of Covid and resulting global lockdowns.
The institution downgraded its forecasts for global growth to 1.7pc in 2023 and 2.7pc in 2024, from previous projections of 3pc in both years.
Economists warned that the global economy remained “fragile”, adding: “higher than expected inflation, abrupt rises in interest rates to contain it, a resurgence of the Covid-19 pandemic, or escalating geopolitical tensions could push the global economy into recession.”
This would mark the first time since the Second World War that two global recessions have occurred within the same decade.
The World Bank blamed sharp slowdowns in the US, eurozone and China for the downgrades as it slashed its growth forecasts for nearly all advanced economies and most developing markets.
Growth in advanced economies is projected to slow from 2.5pc in 2022 to 0.5pc in 2023. “Over the past two decades, slowdowns of this scale have foreshadowed a global recession,” the World Bank said.
“The crisis facing development is intensifying as the global growth outlook deteriorates,” added Mr Malpass. “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 World Bank said that the Chinese economy has been an engine for global growth in the last three decades, expanding nearly 50-fold since 1990 and now accounting for nearly a fifth of world economic output.
But the report has pared back its 2022 growth estimate for China to 2.7pc, its lowest annual growth rate since the 1970s with the exception of 2020 when the Covid pandemic hit. It also warned about indebtedness in the country, and overreliance on a faltering construction industry which accounts for more than a quarter of GDP.
More than 70pc of emerging and developing economies have also had their growth prospects revised downward. Most smaller currencies have weakened against the dollar in the last year, making borrowing capital and importing raw materials more expensive.
The report forecast that investment in emerging and developing economies in the next two years will grow at less than half the rate that prevailed in the previous two decades. By the end of 2024, it predicted that GDP levels in emerging and developing economies will be roughly 6pc below levels forecast before the pandemic.
The World Bank also noted the risk of widespread debt crises in emerging and developing economies, as the strong dollar raised the cost of debt repayments for countries who had borrowed in the currency, such as Ghana, Tunisia and Sri Lanka.
In response to the findings, the World Bank has called for increased investment in emerging and developing markets, and faster debt restructuring.
“Even though the world is now in a very tight spot, there should be no room for defeatism,” said Mr Malpass. “The report makes it clear that there are significant reforms that could be undertaken now to strengthen the rule of law, improve the outlook and build stronger economies.”
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