World Bank raises global growth forecast slightly as China reopens

Global economy to grow 2% this year, but slowdown from stronger growth last year will increase debt distress for developing countries, bank's chief says

World Bank president David Malpass says advanced economies, including the US, are faring better than the lender anticipated in January. EPA

The World Bank has revised its 2023 global growth forecast slightly upwards to 2 per cent from a January forecast of 1.7 per cent on the improved outlook for China’s economy as it winds down pandemic-related restrictions.

China, the world’s second-largest economy, is projected to grow 5.1 per cent this year compared with 4.3 per cent in the bank’s January Global Economic Prospects report, World Bank Group president David Malpass told a media briefing on Monday.

Advanced economies, including the US, are also doing a bit better than the Washington-based lender anticipated in January, he said.

However, the slowdown from stronger growth last year will increase debt distress for developing countries, Mr Malpass said.

Turmoil in the banking sector following the collapse of Silicon Valley Bank and Signature Bank in the US and the takeover of Switzerland’s Credit Suisse by UBS, as well as higher oil prices, could put downwards pressure on growth prospects later this year, he added.

The IMF's managing director Kristalina Georgieva on Monday said global growth this year would be below its previous 3 per cent forecast and would remain around 3 per cent for the next five years.

“Despite the remarkable resilience of consumer spending in the United States and in Europe, despite the uplift from China's reopening, global growth would remain below 3 per cent as projected earlier this year, and what is more concerning, it would remain around 3 per cent for the next five years,” she said.

"That does not give us high hopes for meeting the aspirations of people, especially poor people around the world and most importantly, poor people in poor countries."

In its January World Economic Outlook, the IMF raised its global economic growth estimate for this year by 0.2 percentage points to 2.9 per cent from its October forecast, a slowdown from 3.4 per cent last year.

It warned at the time that the financial environment remains “fragile” as the fight against inflation is not over and will continue to weigh on the global economy, along with Russia's war in Ukraine.

The fund expects the global economy to rebound to 3.1 per cent next year, below the historical average of 3.8 per cent over the 2000-2019 period.

Last week, the IMF also said about 90 per cent of advanced economies are projected to see a decline in their growth rate this year amid higher interest rates.

"There are emerging markets that are doing better. But for frontier markets, for the poor countries, the future is not so bright and in terms of income per capita growth, poor countries would remain below income per capita growth in middle income countries," Ms Georgieva said.

She also said central banks have to continue to keep interest rates high to combat inflation and "that is on the way of restoring the prospects for robust growth".

"We have seen that this rapid transition from low interest rates, abundant liquidity to higher interest rates and much less available liquidity has exposed vulnerabilities in the financial sector, that made the task of policymakers even harder," she said.

Central banks globally have been raising interest rates to fight inflation. The US Federal Reserve as well as the European Central Bank have hiked interest rates recently as inflation continued to remain high as a result of the pandemic and the Ukraine conflict.

Ms Georgieva said the IMF has been providing financial support to countries since the outbreak of the pandemic three years ago.

"Our very first loan was to Kyrgyz Republic, one week after WHO [World Health Organisation] announced the Covid pandemic. Since then we have financed 96 countries ... never in the history of the IMF ... we have done so much for so many," she said.

"We are going to have the global sovereign debt round-table bringing for the first time all creditors — traditional, new, public, private — with the debt countries and with the key institutions. So we can sit around the table and find solutions to what otherwise can be devastating for countries."