The bank revised that forecast at its spring meetings to 2%, according to David Malpass, former president of the World Bank.
The bank also revised its forecast for the global economy for 2024 to 2.4% from its previous forecast in January, which was 2.7%.
The World Bank said in its report that global growth has slowed markedly and the risks of financial stress in emerging and developing economies are intensifying amid rising global interest rates.
As for emerging market economies and developing economies other than China, the report expects their growth rate to slow to 2.9% this year, after registering growth of 4.1%. Last year. This forecast reflects a general decline.
Commenting on this, Ajay Banga, President of the World Bank Group, said: “The surest way to reduce poverty and spread prosperity is to increase employment rates, because slower growth makes more difficult to create jobs. but we all have to work together to make it happen.”
The bank believes that, so far, most emerging market and developing economies have suffered only limited damage due to recent banking pressures in advanced economies, but the sails of these economies are currently sailing in dangerous waters, according to the description of the bank.
The World Bank said one in four emerging and developing economies have actually lost access to international bond markets, in light of the increasingly tight global credit conditions.
These pressures are particularly strong for emerging and developing economies, which suffer from underlying vulnerabilities such as low creditworthiness.
The bank pointed out that the growth expectations of these economies for the year 2023 are less than half of what they were a year ago, which makes them very vulnerable to additional shocks.
Commenting on the report, Indremit Gill, Chief Economist and First Vice President of the World Bank Group, said: “The global economy is in a precarious position, and with the exception of East Asia and of the South, we still have a long way to go. to achieve the momentum needed to eradicate poverty, fight climate change and restore Building human capital Trade is expected to grow in 2023 at less than a third of its rate in the years before the pandemic Emerging markets and developing economies are facing high interest rates Fiscal vulnerabilities have already pushed many “From low-income countries into debt, the financing needs to achieve the Sustainable Development Goals far exceed even the most optimists.”
The World Bank has confirmed that the overlapping shocks represented by the Corona pandemic, the Ukraine crisis and the sharp downturn in light of the tightening of global financial conditions, all of these things have resulted in a long-term setback for development efforts in emerging markets. and developing economies, which may continue for the foreseeable future. .
Consequently, the Bank expected economic activity in these economies by the end of 2024 to be around 5% lower than levels expected before the outbreak of the pandemic.
In low-income countries, especially the poorest countries, the damage is extensive, the Bank said. In more than a third of these countries, per capita income in 2024 will remain below 2019 levels.
And this slow rate of income growth risks deepening extreme poverty in many low-income countries.
“Many developing economies are struggling to adjust to low growth rates, persistently high inflation rates and record debt levels,” said Ihan Kose, Deputy Chief Economist at the Banking Group. the World Bank. the fallout from renewed financial stress in advanced economies – this could worsen their situation… Policymakers in these economies need to act urgently to prevent the contagion of financial crises and reduce short-term national vulnerabilities.
As for advanced economies, the report revised its expectation for those economies up slightly to 0.7% from January’s estimate of 0.5%, but it cut those economies’ growth expectations in 2024 by 1. .7% to 1.2%, and those expectations come at a slowdown from 2022 rates, which were 2.6%.
The bank also revised its forecast for the US economy upwards in 2023 to 1.1% from 0.5% in January, but it also halved its forecast for the world’s largest economy in 2024 to 0. .8% vs. 1.6%, mainly due to the continued impact of the sharp rise in interest rates over the past year and a half.
In the Eurozone, expectations have seen the same scenario, with the bank raising its expectations in 2023 to 0.4% after expecting them to remain stable at 0% in January expectations, and it has also lowered its expectation for 2024 to 1.3% from 1.6%. percent, and the bank attributed this to the delayed effect of tighter monetary policy and energy price hikes.
US interest rates
The report also provides analysis of rising interest rates in the United States and their impact on emerging markets and developing economies.
According to the bank, most of the rise in two-year Treasury yields over the past year and a half has been driven by investor expectations of tight monetary policy in the United States to control inflation. .
According to the report, this particular type of interest rate increase is associated with negative financial impacts on emerging markets and developing economies, including a higher likelihood of financial crises.
Moreover, the Bank finds that these effects are more pronounced in the most economically vulnerable countries.
high risk savings
In particular, high-risk markets and new markets, and by which the bank means countries that have less developed financial markets and have limited access to global capital, these markets will generally experience larger increases in borrowing costs, for example, higher sovereign rates. risk margins in high-risk or new markets are more than three times higher than in other emerging and developing economies.
The World Bank believes that low-income economies currently face a serious dilemma, as high interest rates have exacerbated the deterioration in their public finances over the past decade.
The average public debt of these countries now stands at about 70% of their GDP, and interest payments on the debt absorb an increasing proportion of their limited public revenues. The report found that 14 low-income countries are already in debt distress or at high risk of falling into debt distress, and spending pressures have multiplied significantly in these economies.
Adverse shocks such as extreme weather events and conflict are more likely to leave families in low-income countries in financial hardship than anywhere else due to weak social safety nets in these countries.
On average, according to the Bank, these countries devote only 3% of their GDP to their most needy citizens, well below the average of 26% for developing economies.
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