The World Bank has said that the global economy remained in a ‘precarious state’ and warned of sluggish growth this year and next as rising interest rates slow consumer spending and business investment, and threaten the stability of the financial system.
The bank’s tepid forecasts in its latest Global Economic Prospects report highlight the predicament that global policymakers face as they try to corral stubborn inflation by raising interest rates while grappling with the aftermath of the pandemic and continuing supply chain disruptions stemming from the war in Ukraine.
The World Bank projected that global growth would slow to 2.1 per cent this year from 3.1pc in 2022. That is slightly stronger than its forecast of 1.7pc in January, but in 2024 output is now expected to rise to 2.4pc, weaker than the bank’s previous prediction of 2.7pc.
“Rays of sunshine in the global economy we saw earlier in the year have been fading, and gray days likely lie ahead,” said Ayhan Kose, deputy chief economist at the World Bank Group.
Kose said that the world economy was experiencing a ‘sharp, synchronised global slowdown’ and that 65pc of countries would experience slower growth this year than last. A decade of poor fiscal management in low-income countries that relied on borrowed money is compounding the problem. According to the World Bank, 14 of 28 low-income countries are in debt distress or at a high risk of debt distress.
The bank also warned that rising borrowing costs in rich countries – including the US, posed an additional headwind for the world’s poorest economies.