WB raises global economic growth forecast for 2023 but lowers forecast for 2024

With the US and other major economies proving more resilient than expected, the World Bank on June 6 raised its 2023 global economic growth forecast to 2.1%. However, the bank said high interest rates will pose a greater drag than expected in 2024.

Raising 2023 economic growth forecast to 2.1%

In January 2023, the World Bank warned that global GDP was slowing and on the brink of recession. However, the strength of the US labor market and consumer demand exceeded expectations, combined with the recovery of the Chinese economy after lifting restrictions imposed to prevent and combat the COVID-19 pandemic, causing the world economy to show signs of improvement.

After nearly three years of strict epidemic restrictions, in December 2022, China ended its Zero Covid policy, which had damaged its economy and the world economy. The situation "reversed" in China when economic activities quickly recovered, making China the most important growth engine of the world.

Meanwhile, concerns about the world economy falling into recession have also been eliminated as the world's No. 1 economy, the US, has shown signs of good recovery. Statistics show remarkable new signals from this economy such as the number of weekly applications for unemployment benefits has decreased to the lowest level in the past 53 years, business activity in May increased to the highest level in 13 months, thanks to strong growth in the service sector, the index tracking the manufacturing and service sectors, increased to 54.5 in May, the highest level since April 2022. The recent agreement of the US on the public debt ceiling after many controversies has also prevented the US from the risk of a serious economic recession.

The World Bank forecasts that global gross domestic product will grow by 2.1% in 2023.

Another notable point is that global trade has brightened, especially after the COVID-19 pandemic was pushed back and the global supply chain is being normalized again. Global trade activities in the first quarter of 2023 increased slightly, about 1% with a positive contribution from service trade, increasing about 3% over the same period.

In the first quarter of 2023, the global financial market also witnessed additional interest rate adjustments by many economies, notably the adjustments by central banks of major countries such as the US, UK, and EU to curb the rise in inflation. Inflation is forecast to likely cool down in 2023, most notably in developed countries, where inflation is forecast to be around 5% - still higher than the target of 2% but nearly half of last year.

Faced with positive signals from the world economy, in the Global Economic Prospects report on June 6, the WB raised its forecast for global economic growth in 2023 to 2.1%, higher than the 1.7% forecast given in January.

Global growth forecast for 2024 down to 2.4%

The World Bank report noted that global economic growth will slow significantly over the rest of the year due to the prolonged and persistent effects of tight monetary policy and restrictive credit conditions. These factors are expected to continue to affect economic activity in 2024, causing global growth to be lower than previously forecast.

According to the World Bank, recent banking sector tensions are also contributing to the tightening of financial conditions that will continue until 2024. One of the downside scenarios proposed by the World Bank is that banking sector tensions lead to a severe credit crunch and a larger impact on financial markets in advanced economies. If this happens, global economic growth in 2024 could fall to just 1.3%, the slowest pace in 30 years, excluding the recessions of 2009 and 2020. The World Bank also warned that in another scenario, when financial tensions spread globally to a greater extent, the world economy could fall into recession in 2024.

In the Global Economic Prospects report, the World Bank reduced its 2024 global growth forecast to 2.4%, from 2.7% in January, reduced its 2024 US economic growth forecast to 0.8%, China's to 4.6% and the Eurozone's growth forecast also slightly decreased.

The World Bank also forecasts that inflation will gradually decline as growth slows and labor demand in many economies declines, but core inflation is expected to remain higher than central bank targets in many countries in 2024. In addition, the Russia-Ukraine conflict remains serious and has not ended, along with other uncertainties in major economies, which still threaten to hinder global economic growth.

According to VNA

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