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Business News/ Economy / World Bank slashes global growth outlook to 2.1% from 3.1% on sharp interest rate hikes
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World Bank slashes global growth outlook to 2.1% from 3.1% on sharp interest rate hikes

The World Bank cut its 2024 global growth forecast to 2.4 per cent from 2.7 per cent in January, citing the continuing effects of tighter monetary policy, particularly in reducing business and residential investment.

“Global growth is projected to slow significantly in the second half of this year, with weakness continuing in 2024,” the World Bank said. (REUTERS)Premium
“Global growth is projected to slow significantly in the second half of this year, with weakness continuing in 2024,” the World Bank said. (REUTERS)

The World Bank (WB) said in a report on June 6 that the global economy is in a precarious situation and heading for a substantial growth slowdown as sharp interest-rate increases has hit activity and stirred the vulnerabilities in lower-income countries.

That's the latest outlook of the World Bank, a 189-country anti-poverty agency, which estimates that the international economy will expand just 2.1 per cent in 2023 after growing 3.1 per cent in 2022.

Also Read: Indian American Ajay Banga takes over as World Bank President

Even though the stronger recent momentum led the institution to raise its world gross domestic product forecast for the year to 2.1 per cent from the 1.7 per cent predicted in January, the World Bank has cut its outlook for 2024 to 2.4 per cent from 2.7 per cent. The risks to the outlook remain tilted to the downside, it added.

Greater-than-expected resilience in the early months of 2023 is predicted to fade into more enduring weakness as tighter monetary policy compounds lingering shocks from the pandemic and Russia’s invasion of Ukraine, WB said in its latest Economic Prospects report.

“Global growth is projected to slow significantly in the second half of this year, with weakness continuing in 2024," the World Bank said. “The possibility of more widespread bank turmoil and tighter monetary policy could result in even weaker global growth."

The Federal Reserve and other major central banks have been aggressively raising interest rates to combat a resurgence of inflation, set off by a stronger-than-expected rebound from the pandemic recession, persistent supply shortages and energy and food price shocks caused by the Ukraine war.

The World Bank upgraded its forecast for US economic growth this year to 1.1 per cent. Though weak, that is more than double the growth the World Bank had envisioned in January. The eurozone, which represents the 20 countries that share the euro currency, is expected to post collective growth of 0.4 per cent this year.

In January, the World Bank had expected no growth at all for the eurozone this year. Europe, struggling with higher energy prices caused by the Ukraine war, enjoyed relief from a surprisingly warm winter, which reduced demand for heat.

WB upgraded its 2023 outlook for China after Beijing late last year relaxed its zero-COVID policies, which had restricted travel and hammered its economy.

The world’s second-biggest economy is now expected to grow 5.6 per cent in 2023, up from three per cent last year. It predicts Japan’s growth decelerating to 0.8 per cent this year from one per cent in 2022. India’s economic growth outlook was also slowed down to 6.3 per cent from 7.2 per cent last year. 

Recent banking sector stress is also contributing to tighter financial conditions that will continue into 2024, said World Bank. The lender cited a potential downside scenario where banking stress results in a severe credit crunch and broader financial market stress in advanced economies, which would likely cut 2024 growth by nearly half to just 1.3 per cent - the slowest pace in 30 years outside of the 2009 and 2020 recessions.

“In another scenario where financial stress propagates globally to a far greater degree, the world economy would fall into recession in 2024," added World Bank.

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Published: 06 Jun 2023, 07:32 PM IST
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