WASHINGTON — The World Bank said Tuesday the global economy remained in a “precarious state” and warned of sluggish growth this year and next as rising interest rates slow consumer spending and business investment and threaten the stability of the financial system.
The bank’s tepid forecasts in its latest Global Economic Prospects report highlight the predicament global policymakers face as they try to corral stubborn inflation by raising interest rates while grappling with the aftermath of the pandemic and continuing supply chain disruptions stemming from the war in Ukraine.
The World Bank projected that global growth would slow to 2.1 percent this year from 3.1 percent in 2022. That is slightly stronger than its forecast of 1.7 percent in January, but in 2024, output is now expected to rise to 2.4 percent, weaker than the bank’s previous prediction of 2.7 percent.
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“Rays of sunshine in the global economy we saw earlier in the year have been fading, and gray days likely lie ahead,” said Ayhan Kose, deputy chief economist at the World Bank Group.
Kose said the world economy was experiencing a “sharp, synchronized global slowdown” and that 65 percent of countries would experience slower growth this year than last. A decade of poor fiscal management in low-income countries that relied on borrowed money is compounding the problem. According to the World Bank, 14 of 28 low-income countries are in debt distress or at a high risk of debt distress.
Optimism about an economic rebound this year has been dampened by recent stress in the banking sectors in the United States and Europe, which resulted in the biggest bank failures since the 2008 financial crisis.
The World Bank sees widespread slowdowns in advanced economies, too. In the United States, it projects 1.1 percent growth this year and 0.8 percent in 2024.
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China is a notable exception to that trend, and the reopening of its economy after years of strict COVID-19 lockdowns is propping up global growth. The bank projects the Chinese economy will grow 5.6 percent this year and 4.6 percent next year.
Inflation is expected to continue to moderate this year, but the World Bank expects prices will remain above central bank targets in many countries throughout 2024.