Global economic growth has slowed sharply, says World Bank 

The World Bank Group has expressed concern that global economic growth has slowed sharply and the risk of financial stress in emerging markets and developing economies is intensifying amid elevated global interest rates.

In its latest global economic prospects report released Tuesday, the World Bank said global growth is projected to decelerate from 3.1 per cent in 2022 to 2.1 per cent in 2023.

In emerging markets and developing economies (EMDEs) other than China, growth is set to slow to 2.9 per cent this year, from 4.1 per cent last year. These forecasts reflect broad-based downgrades, economic experts suggest.

“The surest way to reduce poverty and spread prosperity is through employment—and slower growth makes job creation a lot harder. We have an opportunity to turn the tide, but it will take us all working together,” said the new World Bank Group President Ajay Banga at the release of the report US’ capital Washington DC.

According to the World Bank, the effects of the global economic growth slowdown will spill over into the Sub-Saharan Africa region -where Uganda lies- in the form of slower economic growth rate, slowdown in commodity exports and tight financial market (high interest rate). Growth in Sub Saharan Africa is expected to be at 3.2 per cent before picking up to 3.9 per cent in 2024.   

The World Bank further explained that most EMDEs have seen only limited harm from the recent banking stress in advanced economies so far.

“…but they are now sailing in dangerous waters. With increasingly restrictive global credit conditions, one out of every four EMDEs has effectively lost access to international bond markets,” the report notes.

Besides, the squeeze is especially acute for EMDEs with underlying vulnerabilities such as low creditworthiness. To understand this, growth projections for these economies for 2023 are less than half those from a year ago, making them highly vulnerable to additional shocks.  

“The world economy is in a precarious position. Outside of East and South Asia, it is a long way from the dynamism needed to eliminate poverty, counter climate change, and replenish human capital. In 2023, trade will grow at less than a third of its pace in the years before the pandemic,” observed Dr Indermit Gill, the World Bank Group’s Chief Economist and Senior Vice President.

“In emerging markets and developing economies, debt pressures are growing due to higher interest rates. Fiscal weaknesses have already tipped many low-income countries into debt distress. Meanwhile, the financing needed to achieve the sustainable development goals are far greater than even the most optimistic projections of private investment,” he added.

The latest forecasts indicate that the overlapping shocks of the pandemic, the Russian invasion of Ukraine, and the sharp slowdown amid tight global financial conditions have dealt an enduring setback to development in EMDEs, one that will persist for the foreseeable future.

“Many developing economies are struggling to cope with weak growth, persistently high inflation, and record debt levels. Yet new hazards—such as the possibility of more widespread spillovers from renewed financial stress in advanced economies—could make matters even worse for them,” said Dr Ayhan Kose, Deputy Chief Economist of the World Bank Group.

The World Bank is now advising “policy makers in these economies to act promptly to prevent financial contagion and reduce near-term domestic vulnerabilities.” 

[email protected]