The exit of the world economy from the crisis is delayed due to geopolitical instability

The exit of the world economy from the crisis is delayed due to geopolitical instability


The World Bank (WB) has published a traditional semi-annual update of the forecast for the development of the world economy - the exit from the protracted crisis that began with the COVID-19 pandemic and intensified by the growth of geopolitical instability due to the Russian military operation in Ukraine is again dragging on. Estimates of the slowdown in global growth are becoming softer, but the prospects for its end are still vague and shifting to an increasingly distant future. Thus, the global economic growth forecast for 2023 was raised to 2.1% from 1.7% expected in January, but at the same time reduced to 2.4% (from 2.7%) for 2024. The WB forecast for Russia has not changed since the revision in April: this is a decline in GDP by 0.2% in 2023 and growth by 1.2% in 2024.

Updated Global Economic Outlook from the World Bank "Global Economic Prospects" captures a new “shift to the right” of the prospects for emerging from a state of uncertainty: “Three years after the onset of the coronavirus recession — the longest since World War II — the state of the world economy remains in turmoil and it is deeply short of resources needed to progress in the fight against poverty and change climate change and for human capital development,” notes Indermit Gill, Chief Economist of the World Bank, in the preface to the paper. The WB report describes this as the combined result of the COVID-19 pandemic and global instability caused by the Russian military operation in Ukraine, and the situation is exacerbated by the tightening of monetary policy by the largest central banks.

As a result, the sustainability of economic development, hoped for by higher-than-expected growth rates in a number of major economies, including China and the United States, is now declining, according to the World Bank.

This is forcing WB analysts to raise their estimates of short-term prospects (the “rapid fall and rapid recovery” scenario is becoming less and less realistic), while lowering the bar for medium-term forecasts. Thus, the global economic growth forecast for 2023 was raised to 2.1% from 1.7% expected in January, but at the same time reduced to 2.4% (from 2.7%) for 2024. The same dynamics can be seen in the assessments of the development of the world's leading economies: the US GDP growth forecast for 2023 has been raised to 1.1% (0.5% in the January forecast), for 2024 it has been lowered to 0.8% from 1.6% . The euro area GDP is now expected by the World Bank to grow by 0.4% in 2023 (the previous forecast is stagnation) and by 1.3% in 2024 (1%). The forecast for the Chinese economy has been improved to 5.6% from 4.3%, and lowered to 4.6% from 5% for the next one.

The WB’s expectations for the Russian economy have not changed since January - this is a decline in GDP by 0.2% in 2023 and growth by 1.2% in 2024.

The “stretching” of the crisis was also not affected by the forecasts for 2025: the World Bank expects that the US economy will grow by 2.3%, the eurozone - also by 2.3%, China - by 4.4%, Russia's GDP growth will slow down to 0.8 %.

Contributing to the prolongation of uncertainty is the global fight against inflation, which was accelerated by pent-up demand during the pandemic, which was realized in the context of a lagging recovery in supply chains. In 2022, the situation was aggravated by new trade restrictions caused by the already geopolitical restructuring of the global world. Rate hikes by major central banks, including US Fed And ECBincreases the cost of borrowing to finance the recovery, and global inflation has been more resilient than expected. Its gradual decline, which WB analysts are sure of, will be ensured not only by a weakening of the growth in commodity prices, but also by a decrease in global demand, which, in turn, will also slow down economic development. Nevertheless, core inflation rates in many countries are likely to remain above pre-Covid levels after 2024, the WB notes.

Oleg Sapozhkov



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