Durrant Pate/Contributor

The World Bank is cautioning that global economic growth has slowed sharply in the face of higher interest rates, chronic inflation and continued fallout from the banking crisis.

In its semiannual Global Economic Prospects report, released on Tuesday (June 6), the multilateral development bank noted that the global economy is expected to expand just 2.1 per cent this year after growing 3.1 per cent in 2022.

The Washington-based institution said advanced economies, including the US, are projected to cool to a growth rate of just 0.7 per cent this year, representing a marked drop from the 2.6 per cent rate recorded in 2022 and one of the weakest growth rates in the last five decades.

Growth in the world’s three largest economies the US, China and the European Union has already slowed sharply this year.

According to the bank’s chief economist and senior vice president, Indermit Gill, “the global economy remains in a precarious state,” advising reporters that this newest report marks a slight improvement from the forecasts laid out by the World Bank in January, when it projected world growth of just 1.7 per cent this year.

At the same time, the 2024 growth forecast of 2.4 per cent is weaker than the bank’s previous prediction of 2.7 per cent.

High interest rates crippling lower-income states

The World Bank acknowledges that the Federal Reserve and other global central banks are waging an aggressive campaign to crush high inflation, raising interest rates at the fastest pace in decades in a bid to cool the economy and tame runaway prices. “Higher borrowing costs are hitting lower-income countries particularly hard,” report noted further.

However, the threat of higher interest rates, and the possibility of more turmoil in the banking sector following a spate of bank collapses this spring, could slow economic growth even more this year. “The world economy remains hobbled,” the World Bank declared in its report, saying “besieged by high inflation, tight global financial markets, and record debt levels, many countries are simply growing poorer.”

Growing threat of recession next year

The World Bank is warning that global recession risk is rising, as interest rates soar higher. The global economy faces a growing threat of recession next year as central banks across the world raise interest rates at an aggressive clip in a bid to tame inflation, the World Bank declared in its new report. 

It warned that even a “moderate hit” to the global economy over the next year could drag it into a recession. “Global growth is slowing sharply, with further slowing likely as more countries fall into recession,” said outgoing World Bank Group President, David Malpass.

According to him, “My deep concern is that these trends will persist, with long-lasting consequences that are devastating for people in emerging markets and developing economies.”