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Global economy enters recession, slowing growth in 2023

Why the World Bank downgraded the outlook for global growth

The World Bank has cut its global growth forecasts from its mid-2022 projections on what it sees as a general deterioration in economic conditions.

The International Development Institution has cut almost all of its forecasts for the world’s advanced economies, reducing the outlook for global economic growth to 1.7 percent in 2023, according to its latest Global Economic Outlook report. The organization previously predicted that the world economy would expand by 3% in 2023.

The adjustment was driven by a significant downgrade in the outlook for the US economy — now forecast to grow 0.5%, down from earlier projections of 2.4%.

The World Bank lowered its growth outlook for China for 2023 from 5.2% to 4.3%, Japan from 1.3% to 1% and Europe and Central Asia from 1.5% to 0.1%.

“Global growth has slowed to the point that the global economy is dangerously close to slipping into recession,” the World Bank said, crediting “unexpectedly fast and synchronous” global monetary policy tightening behind the slow growth.

The lowered estimates would mark “the third weakest pace of growth in nearly three decades, shadowed only by the global recessions caused by the pandemic and the global financial crisis.”

Global growth has slowed to the point that the global economy is dangerously close to falling into recession.

The World Bank said that tighter monetary policy by central banks around the world may have been necessary to tame inflation, but that it “contributed to a significant deterioration in global financial conditions, which is significantly dampening activity.”

“The United States, the eurozone and China are going through a period of pronounced weakness, and the resulting spillovers are exacerbating other headwinds facing emerging markets and developing economies,” it said.

The global financial organization also cut its forecast for 2024, to 2.7 percent from an earlier forecast of 3 percent growth.

China is a ‘key variable’

China’s faster-than-expected reopening poses major uncertainties for its economic recovery, the World Bank said in its report.

“Economic recovery.” [in China] may be delayed if reopening results in large outbreaks that overwhelm the health sector and undermine confidence,” the report said. “There is significant uncertainty about the trajectory of the pandemic and how households, businesses and policymakers in China will respond.”

A pedestrian walks in the Lujiazui financial district in Pudong, Shanghai, China, Tuesday, Jan. 3, 2023.

Bloomberg | Bloomberg | Getty Images

World Bank President David Malpas said on CNBC’s “Closing Bell” on Tuesday that “China is a key variable and China could have upsides if they push through Covid as quickly as they seem to be doing.”

“China is big enough by itself to really drive up global demand and supply,” he said.

“One of the questions for the world would be what’s doing the most — if it’s mostly putting pressure on global demand, then that’s pushing up commodity prices.” But it also means the Fed will be hiking for a longer period of time,” he said.

Read more about China on CNBC Pro

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