Emerging and developing countries "are navigating dangerous waters," warns the World Bank, which publishes new economic forecasts on Tuesday. They are bearing the brunt of slowing global growth, particularly China's downturn, rising global interest rates and high inflation.
The massive shock of the pandemic and its lasting effects are combined with the impact of the Russian invasion of Ukraine and the general tightening of monetary policy. The resilience of economic activity observed at the beginning of the year is expected to fade and global GDP growth should slow from 3.1% in 2022 to 2.1% in 2023.
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In emerging and developing countries, excluding China, activity is expected to slow to 2.9% this year from 4.1% in 2022. Forecasts have been revised downwards for 70% of these economies, including India, South Africa and Egypt. The revision is particularly severe for Saudi Arabia (-1.5%), a consequence of the fall in oil prices, Argentina (-4%), struggling with an endless crisis and an inflationary spiral or Pakistan (-1.6%) which is paying the price of the devastating floods that affected 33 million people at the end of 2022, the depreciation of the rupee and political instability.
Contrary to International Monetary Fund projections, the World Bank sees Russia in the red, with a decline in GDP of 0.2% in 2023. However, this contraction was less pronounced than expected at the beginning of the year, partly due to continued energy exports. China and India, in particular, have massively imported Russian oil.
GDP per capita below 2019 levels
The World Bank is concerned about the economic and financial deterioration of developing countries. With increasingly restrictive credit conditions at the global level, one in four emerging or developing countries has lost access to international bond markets, warns the Washington institution.
Interest payments absorb an increasing share of already limited government revenues, while public debt averages 70% of GDP. Fourteen low-income countries are already over-indebted or at high risk of doing so, the World Bank said, calling once again on the international community to accelerate debt restructuring. Issues initiated under the new G20 Common Framework regime, notably Ethiopia and Ghana, have been slow to materialize.
"These economies' growth projections for 2023 are less than half those of a year ago," the report says, "making them highly vulnerable to additional shocks." In low-income countries, especially the poorest, the damage "is considerable": in more than a third, per capita incomes in 2024 will still be below 2019 levels.
"The global economy is in a precarious position," said Indermit Gill, Chief Economist and Senior Vice President of the World Bank. Outside of East and South Asia, it falls far short of the momentum needed to eradicate poverty, combat climate change and rebuild human capital."
In detail, the World Bank highlights regional disparities, which are likely to increase further next year. Growth will be one of the most dynamic in East Asia and the Pacific (+5.5%), supported by the reopening of China, up from 2022 (+3.5%).
Other regions are struggling, particularly Latin America and the Caribbean (+1.5% in 2023) and the Middle East and North Africa (+2.2%). These headwinds, the report says, are due to weak external demand as rising prices, especially food prices, weigh on the poorest households. The lingering impact of the war in Ukraine will also continue to be felt in East and sub-Saharan Africa.
Brakes in the euro zone
In developed countries, activity is expected to increase from 2.6% in 2022 to 0.7% in 2023 and will remain at a low level in 2024. After growth of 1.1% in 2023, the US economy could decelerate to 0.8% in 2024, mainly due to the lingering impact of the sharp rise in interest rates over the past eighteen months as the Federal Reserve (Fed) has taken a firmer stance to contain inflation. In the euro area, activity is expected to reach 0.4% in 2023, up from 3.5% in 2022, due to the delayed effect of monetary policy tightening and energy price increases.