World Bank forecasts weakening of world economy this year

The world economy is likely to weaken this year due to interest rate hikes, the fallout from Russia’s invasion of Ukraine and the lasting effects of the coronavirus pandemic, the World Bank has predicted.

The entity, which covers 189 countries and is dedicated to the fight against poverty, estimates that the world economy will grow just 2.1% in 2023 after growing 3.1% in 2022. Even so, its World Economic Outlook report, issued on Tuesday, it offers a more encouraging picture than that of January, when it predicted growth of just 1.7% for the entire year.

Global banks around the world have been raising interest rates to combat inflation caused by the sudden recovery after the pandemic recession, persistent shortages of inventories and price increases caused by the war in Ukraine.

But the global economy has proven surprisingly resilient, and the World Bank estimates that economic growth will accelerate to 2.4% in 2024.

The United States has continued to create jobs — employers there added 339,000 workers in May, far more than economists predicted — even though the Federal Reserve has raised its benchmark interest rate 10 times in the past 15 months. In its report on Tuesday, the World Bank updated its forecast for US economic growth to 1.1%. While that is weak, it is more than double what the World Bank forecast in January.

The eurozone, which includes the 20 countries that use the euro, will have a collective growth of 0.4% this year, predicted the World Bank. That, too, is a slight improvement: In January the organization had anticipated zero growth for the eurozone this year. Europe, hit by high energy costs in the aftermath of the war in Ukraine, got some relief from a relatively mild winter, which reduced demand for heating.

The World Bank revised its 2023 forecast for China after Beijing eased draconian restrictions it imposed to control the coronavirus, curtailing travel and hurting its economy. The forecast now is that the world’s second-largest economy will grow 5.6% in 2023, up from 3% last year. The World Bank forecasts a slowdown in Japan to 0.8% this year from 1% in 2022. It forecasts India’s growth to be 6.3% this year, down from 7.2% last year .

The World Bank also predicts that world trade will decline sharply this year. It forecasts a sharp decline in energy and raw material prices this year and next.

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