According to the World Bank January 2023, Global Economic Prospects report, global growth is expected to slow down significantly in 2023, with a projected rate of 1.7 percent, the third-lowest pace in nearly three decades, surpassed only by the global recessions caused by the pandemic and the global financial crisis. This is 1.3 percentage points lower than previous forecasts, reflecting simultaneous policy tightening aimed at controlling high inflation, worsening financial conditions, and ongoing disruptions from Russia’s invasion of Ukraine.
The US, the Eurozone, and China are all experiencing a period of pronounced weakness, and the resulting spillovers are exacerbating other challenges faced by emerging market and developing economies (EMDEs). The combination of slow growth, tightening financial conditions, and heavy indebtedness is likely to weaken investment and trigger corporate defaults. Negative shocks such as higher inflation, tighter policy, financial stress, deeper weakness in major economies, or rising geopolitical tensions could push the global economy into recession.
In the short term, urgent global efforts are needed to mitigate the risks of global recession and debt distress in EMDEs. Given the limited policy space, it is crucial that national policy makers ensure that any fiscal support is focused on vulnerable groups, that inflation expectations remain well anchored, and that financial systems continue to be resilient.
Policies are also needed to support a significant increase in EMDE investment, which can help reverse the slowdown in long-term growth exacerbated by the overlapping shocks of the pandemic, the invasion of Ukraine, and the rapid tightening of global monetary policy. This will require new financing from the international community and from the repurposing of existing spending, such as inefficient agricultural and fuel subsidies.
