WB warns global economy remains unstable

The World Bank forecasts global economic growth will slow from 3.1% in 2022 to 2.1% this year.

The New York Times website quoted a report by the World Bank (WB) on June 6 warning that the global economy remains unstable and economic growth in the next two years will slow down due to high interest rates reducing consumption and business investment, while threatening the stability of the financial system.

In its latest "Global Economic Prospects" report, the World Bank issued a dim forecast that underscores the difficulties facing global policymakers as they try to curb inflation by raising interest rates, while also dealing with the lingering impact of the pandemic and continued disruptions in supply chains due to the conflict in Ukraine.

The World Bank forecasts global economic growth will slow from 3.1% in 2022 to 2.1% this year, up from a 1.7% forecast in January, but growth will slow to 2.4% in 2024, down from the bank's previous forecast of 2.7%.

The world economy is experiencing a “sharp and simultaneous slowdown,” with 65 percent of countries reporting lower growth this year than last, said Ayhan Kose, the World Bank’s deputy chief economist. Fiscal mismanagement in debt-reliant low-income countries has compounded the problem. According to World Bank data, 14 of 28 low-income countries are in debt distress or at risk of falling into debt distress.

Recent pressure on the banking sector in the US and Europe has led to the largest bank failures since the 2008 financial crisis, dampening optimism about an economic recovery this year. Concerns about the health of the banking sector have led many banks to stop lending to businesses and individuals, a phenomenon that the World Bank said could further slow economic growth.

The World Bank also warned that rising borrowing costs for rich countries had put additional pressure on the world's poorest economies, including the United States, where overnight interest rates topped 5 percent for the first time in 15 years.

The report warns that weaker economies face a greater risk of financial crisis as interest rates rise. Higher interest rates increase the cost of debt servicing for developing countries, and if their currencies fall, the cost of imports also increases.

In addition to the risk of rising interest rates, the combination of the pandemic and the conflict in Ukraine has reversed decades of progress in reducing global poverty. The World Bank estimates that incomes in the poorest countries will fall by 6% in 2024 compared to 2019.

“Emerging and developing economies are just trying to hang on; they have lost the money to create jobs and provide basic services to their most vulnerable people,” the report said.

The World Bank also sees a slowdown in developed economies. In the US, growth is forecast at 1.1% this year and 0.8% in 2024.

China is a clear exception to this trend. After years of strict lockdowns due to the COVID-19 pandemic, China’s reopening of its economy is supporting global growth. The World Bank forecasts China’s economic growth to be 5.6% this year and 4.6% next year.

Inflation is forecast to continue to slow this year, but the World Bank says that by 2024, many countries will still have inflation above the targets set by central banks.

(According to VTV)

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