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Global Economy Stalls, Unrelenting Rate Ascends



The global economy is at a critical point, with a high risk of instability and uncertainty. Highlighted in recent reports by the World Bank, the challenges ahead are evident as sluggish growth looms due to rising interest rates hampering consumer spending and business investment, thus posing a threat to financial system stability. The aftermath of the pandemic and ongoing supply chain disruptions from the war in Ukraine compound the challenges faced by global policymakers grappling with stubborn inflation. The World Bank's Global Economic Prospects report projects a deceleration in global growth, with an anticipated slowdown to 2.1% in 2023, compared to the 3.1% achieved in 2022. Although slightly more robust than the earlier forecast of 1.7%, the projected output of 2.4% in 2024 remains weaker than previous estimates. This "sharp, synchronized global slowdown" is set to impact 65% of countries, with poor fiscal management in low-income nations worsening the problem. Currently, 14 of 28 low-income countries are in or at high risk of debt distress. Recent stress in the banking sectors of the United States and Europe, resulting in significant failures, has further dampened optimism about an economic rebound, as concerns over the industry's welfare have led to reduced credit provision, weighing down growth. Alleviating the forecasted downfall must come in each country’s priority list. While most countries are currently in a precarious state, Emerging markets and developing economies are the ones to look for.


Emerging markets and developing economies (EMDEs) are set to face financial distress with the sharp rise of global interest, mentioned in the World Bank’s latest Global Economic Prospects report, Washington, Tuesday (6/6). EMDEs growth will decline further from this year’s 4.1% to barely 3%, showcasing the significant economic downgrade. World Bank Group President Ajay Banga notes how the slowdown restrains Government’s effort to reduce poverty and minimize the welfare gap. In addition, most mitigations are achieved through employment, which unfavorably has a similar trend to the growth itself. Banking sectors are receiving the most issues marked by the increasingly restrictive global conditions–one of every four EMDEs has effectively lost access to the International bond markets. Each country faces similar financial positions, encountering mounting poverty, replenishing human capital, and diminishing private investments. However, the resistance between countries is one to distinguish the impacts. Advanced economies, such as the US, are more vulnerable to the downturn after facing the alarming debt ceiling–averaging 70% of the US GDP. Growth is foreseen to continuously decelerate by 0.8%, mirroring the interest rates hike. On the contrary, China is among the strongest contenders in the collective economic decline. In China, growth is projected to rebound to 5.6% in 2023, as the accumulated excess savings support household spending, especially on services. Despite that, China is experiencing a significant drop in exports, falling by 7.5% YoY. The poor export performance reflects weak demand for Chinese goods. In these challenging circumstances, policymakers must navigate the uncertain economic landscape with caution, finding the delicate balance between addressing inflation, supporting recovery, and managing systemic risks.


The exhortation proclaimed by the World Bank concerning the global economy and the reverberation of high-interest rates has garnered significant attention from media outlets. It has brought forth valuable annotation on the urgency to address this challenge effectively, necessitating swift action from policymakers to mitigate associated risks and uncertainties. The Deputy Chief Economist of the World Bank Group, Ayhan Kose, has stressed the importance of prompt effort by policymakers in affected economies to prevent financial contagion and alleviate near-term domestic vulnerabilities. To this end, policymakers should closely monitor the situation, continually assessing the ramifications of rising interest rates on various sectors and economies. This vigilant monitoring will empower policymakers to make informed decisions and develop strategies tailored to address the challenges of high-interest rates. Media coverage accentuates the imperative of discovering effective solutions to tackle the issues arising from the unrelenting rate surge. Policymakers are urged to comprehensively examine various strategies to counteract the detrimental impacts of heightened interest rates on economic growth. This entails considering the adjustment of monetary policies, the implementation of precisely targeted fiscal interventions, and the facilitation of financial stability. The primary emphasis should be creating an environment conducive to investment, fostering economic activity, and bolstering sustained prosperity in the face of prevailing economic uncertainties. In essence, as the global economy stalls, the ultimate objective is to stabilize it and create an environment that nurtures sustainable growth.


Sources:

CNBC

New York Times

World Bank


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