The World Bank has highlighted how the global economy is in a precarious situation, with a significant slowdown in growth due to the increase in interest rates which affect economic activity and create vulnerability in low-income countries.
In its latest report on Economic Outlook, the institution expects that the resilience shown in the first months of 2023 could fade due to more lasting weakness, exacerbated by monetary tightening and the lingering effects of the pandemic and the Russian invasion of Ukraine.
Although a recent improvement in momentum has led the World Bank to revise its global GDP forecast upwards for this year from 1.7% to 2.1%, expectations for 2024 have been lowered from 2.7% at 2.4%.
The institution stresses that the risks to the economic outlook are still oriented to the downside. “Global growth is expected to slow significantly in the second half of this year, with weakness continuing into 2024,” says the World Bank, which also warns of the possibility of further weakness due to increased banking instability and a more restrictive monetary policy.
The impact of the higher financing costs is “increasingly evident” and further delayed effects are yet to appear, with increasingly restrictive credit conditions. The institution’s analysis also shows that the prospects for emerging and developing economies are particularly “worrying”.
To reduce the risks of financial contagion, the Washington-based World Bank suggests that central banks communicate their intentions “as soon as possible and as clearly as possible” in order to avoid sharp changes in the economic outlook.