Emerging and developing countries are “navigating in dangerous waters”, warns the World Bank, which publishes new economic forecasts on Tuesday. They are bearing the full brunt of the slowdown in global growth, in particular the slowdown in China, the rise in global interest rates and high inflation.
The massive shock of the pandemic and its lasting effects are combined with the impact of the Russian invasion of Ukraine and the general tightening of monetary policy. The resilience of economic activity observed at the start of the year should fade and global GDP growth will slow from 3.1% in 2022 to 2.1% in 2023.
In emerging and developing countries, excluding China, activity is expected to slow to 2.9% this year from 4.1% in 2022. Forecasts have been revised downwards for 70% of these economies, including India, South Africa or Egypt. The revision is particularly severe for Saudi Arabia (-1.5%), a consequence of the fall in oil prices, Argentina (-4%), struggling with an endless crisis and an inflationary spiral or even the Pakistan (-1.6%) which is paying the price for the devastating floods which affected 33 million people at the end of 2022, the depreciation of the rupee and political instability.
Contrary to the projections of the International Monetary Fund, the World Bank sees Russia in the red, with a drop in its GDP of 0.2% in 2023. A contraction, however, less strong than expected at the start of the year, partly thanks to the continued energy exports. China and India, in particular, have massively imported Russian oil.
The World Bank is concerned about the economic and financial deterioration of developing countries. With increasingly restrictive credit conditions worldwide, one in four emerging or developing countries has lost access to international bond markets, warns the Washington institution.
Interest payments are absorbing an increasing share of the already limited public revenues while public debt averages 70% of GDP. Fourteen low-income countries are already over-indebted or in serious danger of being so, worries the World Bank, which is once again calling on the international community to speed up debt restructuring. Files initiated under the new regime of the common G20 framework, in particular Ethiopia and Ghana, are slow to materialize.
“These economies’ growth projections for 2023 are half of those of a year ago, the report says, making them highly vulnerable to additional shocks.” In low-income countries, especially the poorest, the damage “is enormous”: in more than a third, per capita incomes in 2024 will still be below 2019 levels.
“The world economy is in a precarious position, supports Indermit Gill, chief economist and first vice-president of the World Bank. Outside of East Asia and South Asia, it is far from the momentum needed to eradicate poverty, fight climate change and rebuild human capital”.
In detail, the World Bank highlights regional disparities, which are likely to increase further next year . It is in East Asia and the Pacific that growth will be one of the most dynamic (5.5%), supported by the reopening of China, up from 2022 (3.5%).
The other regions are struggling, in particular Latin America and the Caribbean (1.5% in 2023) as well as the Middle East and North Africa (2.2%). These headwinds, says the report, are due to weak external demand, a consequence of rising prices, especially food prices, which weighs on the poorest households. The lingering impact of the war in Ukraine will also continue to be felt in East Africa and sub-Saharan Africa.
As for the developed countries, activity should fall from 2.6% in 2022 to 0.7% in 2023 and will remain at a low level in 2024. After growth of 1.1% in 2023, the American economy could decelerate to 0.8% in 2024, mainly due to the lingering impact of the sharp rise in interest rates over the past eighteen months, as the Federal Reserve (Fed) has taken a firmer stance to contain inflation. In the Eurozone, activity is expected to reach 0.4% in 2023, compared to 3.5% in 2022, due to the delayed effect of monetary policy tightening and increases in energy prices.
