World Bank Brightens View of Global Growth This Year, Downgrades 2024

WASHINGTON—The World Bank sees better global economic growth than previously estimated in 2023, thanks to resilient U.S. consumer spending and China’s faster-than-expected reopening in the early part of the year.

The bank still expects slowing growth in the second half of this year and a muted expansion into next year, according to its forecast released Tuesday. It warned that stubbornly high inflation and interest-rate increases are weighing on economic activity around the world, particularly in developing countries.

The bank now projects the world’s economy will grow 2.1% this year, up from the 1.7% pace it forecast in January. The new estimate still marks a slowdown from last year’s 3.1% expansion.

“The global economy remains in a precarious state,” the multilateral lender said in the latest issue of its semiannual Global Economic Prospects report. The bank noted overlapping negative shocks from the pandemic, Russia’s invasion of Ukraine and the sharp tightening of monetary policy.

The bank forecasts growth of 2.4% next year—a pickup from this year, but not as much as its January estimate of 2.7%.

The somewhat improved 2023 outlook is consistent with other data showing the U.S. and much of Europe have so far avoided a recession that many forecasters expected heading into 2023.

Better-than-expected economic performances at the start of the year have helped keep inflation stubbornly high in many advanced economies. As a result, policy makers in the U.S. and other rich nations have continued to raise interest rates to tame inflation. The World Bank says that the impact is felt particularly acutely in many developing nations.

For many lower-income countries, higher rates are crimping growth, slowing investment and intensifying the risk of financial crises, the bank said.

“The possibility of more widespread banking turmoil and tighter monetary policy could result in even weaker global growth,” the World Bank said. Rapid U.S. rate increases since early 2022 have created a pocket of volatility in the otherwise stable banking system, contributing to the failures of Silicon Valley Bank, Signature Bank and First Republic Bank earlier this year.

The drag on economic activities from tighter monetary policy is growing more pronounced in interest-rate-sensitive sectors such as business and residential investments.

Emerging markets and developing economies outside of China are expected to see their growth slow to 2.9% this year from 4.1% last year.

“Besieged by high inflation, tight global markets and record debt levels, many countries are simply growing poorer,” said Indermit Gill, World Bank chief economist.

Some of the world’s poorest nations are particularly vulnerable. Many of their governments have been forced to spend growing shares of their limited resources to pay higher interest on their debts, putting their finances in precarious positions and raising risks of financial dislocations, the World Bank said.

The average ratio of debt to gross domestic product among the 28 poorest countries, those with per capita incomes below $1,085 annually, has grown to 67% from 36% in 2011. These countries spend just 3% of their revenues to support their poorest citizens.

Gill urged central banks, particularly those from rich countries, to communicate their intentions as early and clearly as possible to avoid the disruptive spillover to global financial markets. Monetary officials from emerging markets may need to tighten their own policies to limit capital outflow and currency depreciation, which could fuel inflation, he said.