WASHINGTON— Global growth has slowed sharply and the risk of financial stress in emerging markets and developing economies (EMDEs) is intensifying amid elevated global interest rates, according to the World Bank’s latest Global Economic Prospects report.
Global growth is projected to decelerate from 3.1% in 2022 to 2.1% in 2023. In EMDEs other than China, growth is set to slow to 2.9% this year from 4.1% last year. The surest way to reduce poverty and spread prosperity is through employment—and slower growth makes job creation a lot harder,” said World Bank Group President Ajay Banga. “It’s important to keep in mind that growth forecasts are not destiny. We have an opportunity to turn the tide but it will take us all working together.”
Most EMDEs have seen only limited harm from the recent banking stress in advanced economies so far, but they are now sailing in dangerous waters.
The squeeze is especially acute for EMDEs with underlying vulnerabilities such as low creditworthiness.
“The world economy is in a precarious position,” said Indermit Gill, the World Bank Group’s Chief Economist and Senior Vice President. “Outside of East and South Asia, it is a long way from the dynamism needed to eliminate poverty, counter climate change, and replenish human capital. In 2023, trade will grow at less than a third of its pace in the years before the pandemic.
In emerging markets and developing economies, debt pressures are growing due to higher interest rates. Fiscal weaknesses have already tipped many low-income countries into debt distress.