World Bank gives global recession warning

World Bank warns of global recession
World Bank warns of global recession

by 5paisa Research Team Last Updated: Feb 21, 2023 - 02:30 pm 5.1k Views
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In no uncertain terms, the World Bank has warned that the global economy could be closer to a recession than previously thought. In fact, across the board, the World Bank has sharply cut down its growth forecasts for most countries and regions. It has also warned that the new adverse shocks could easily push the global economy into a recession; or at least a temporary slowdown. For the world economy as a whole, the World Bank projects growth of a much slower 1.7% in 2023. Just in June 2022, the World Bank had pegged the rate of growth at 3.4%. Effectively, the global growth targets have been literally halved. This was part of the Global Economic Prospects Report prepared by the World Bank.

In the last 30 years, according to the World Bank, this growth of 1.7% for the world economy could be the worst in normal years. That means; if you leave out the years of extreme pessimism like 2009 and 2020, then year 2023 was likely to be the slowest in terms of overall growth of the global economy. Apart from cutting its growth estimates for the year 2023, World Bank has also cut its forecast for the year 2024. It has blamed the lag effect of persistent inflation and higher interest rates as the key reasons for this growth downgrade for FY24. In addition, the geopolitical risks created by the Russian invasion of Ukraine and the sabre rattling of China in the South China sea, could impact investment.

According to the World Bank, the pressure is likely to come from the emerging markets and developing economies also. For instance, the combined GDP of emerging markets and developing economies at the end of 2024 is expected to be at least 6% lower than the expected level of GDP prior to the COVID pandemic. Clearly, the pandemic has set off a cycle of too much liquidity, followed by too much inflation leading to too much hawkishness with the consequent impact on growth rates of the global economies. Also, the weakness in the US, Europe and China is gradually spilling over to their trading partners in the form of weaker exports and is impacting the export intensive sectors of South East Asia the most.

What the World Bank now apprehends is that an amalgam of slow growth, tight financial conditions and heavy indebtedness is likely to weaken investments. All these factors are also likely to trigger corporate defaults in a big way. Consequently, urgent and imperative global action is required to be taken up on a war footing to mitigate the risks of global recession and debt distress. As the World Bank puts it, the need of the hour is fiscal support to the vulnerable groups and the least common denominators of any economy. That cannot be compromised with. However, for other segments, fiscal deficit control must take priority.

However, World Bank has lauded the performance of India as an economy. It has pegged India’s growth at 6.6% for the year 2023 and at 6.1% for the year 2024. The 50 bps lower growth in 2024 is likely due to the lag effects of higher interest rates and higher inflation. World Bank has specifically commended the way India managed its economy and the massive vaccination program in an efficient and effective manner. The way India had brought COVID under control was the main reason the economy did not suffer too much. Also, it has been at the forefront of various opportunities opening up through its Make in India and PLI scheme as it looks to emerge as the preferred manufacturer for the world.


World Bank has warned that 2024 could see the lowest growth in the last 30 years, leaving out abnormal recession years. With sharply lower growth, the challenge would be running tight budgets. World Bank has projected India to be the only high growth large economy in 2023 and 2024.

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