Market: The World Bank raises its growth forecast for 2023, more cautious for 2024


by David Lawder

WASHINGTON (Reuters) – The World Bank on Tuesday raised its global growth forecast for 2023 as the United States and other major economies proved more resilient than expected, while warning that higher interest rates would lead to a greater slowdown than expected next year.

Real world gross domestic product (GDP) is expected to grow by 2.1% this year, the World Bank says in its latest Global Economic Prospects report.

In its previous January report, it predicted growth of 1.7% for this year. Despite this increase, the World Bank’s forecast remains well below the 3.1% growth in GDP achieved in 2022.

For 2024, global growth has been revised down to 2.4%, against 2.7% expected in January, the institution citing the lingering effects of more restrictive monetary policies, which in particular reduce commercial and residential investment.

“Growth is expected to slow significantly over the remainder of 2023, as it is held back by the lagged and lingering effects of monetary tightening, and tighter credit conditions,” the World Bank said.

“These factors are expected to continue to affect activity well into next year, dragging global growth down below previous projections.”

The World Bank forecasts a rebound in global growth to 3.0% in 2025.

In January, she warned that the pace of global GDP growth was slowing to the point of approaching recession, but the strength of the labor market and consumption in the United States has been stronger than expected, as well as the recovery of the Chinese economy after the end of restrictions related to COVID-19.

US economic growth for 2023 is now forecast at 1.1%, more than twice the 0.5% forecast in January, while China’s growth is expected to reach 5.6% from 4.3% forecast in January , and after a growth slowed by the COVID of 3% in 2022.

The World Bank, however, halved its growth forecast for the United States in 2024, to 0.8%, and lowered its forecast for China by 0.4 percentage points, to 4.6%.

For the euro zone, the growth forecast was raised to 0.4% in 2023 against GDP stability expected in January. For 2024, the forecast is lowered to +1.3% against +1.6% in January.

TENSIONS IN THE BANKING SECTOR

Tensions in the banking sector are also contributing to the tightening of financial conditions, which will continue in 2024, explains the institution.

The World Bank points to a negative scenario in which banking strains would lead to a sharp contraction in credit and greater turbulence in the financial markets of advanced economies.

That could almost halve global growth in 2024, to just 1.3% – which would be the weakest growth in 30 years, excluding the recessions of 2009 and 2020.

“In another scenario, a much greater global spread of financial stress would push the global economy into recession in 2024,” the World Bank added.

According to the institution, inflation should gradually decline as growth and demand for labor in many economies slow and commodity prices stabilize.

Core inflation, however, is expected to remain above central bank targets in many countries throughout 2024, the World Bank estimates.

(Report David Lawder; Corentin Chapron for the French version, edited by Blandine Hénault)

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