Global recession warning from the World Bank

Are we perilously close to a global recession? Well, the World Bank is worried to the extent that it has downgraded its growth forecast for 2023 to 1.7% and a result of the ongoing effects of the war in Ukraine and the continued pandemic. That said, the good news is that global inflation is going to continue to fall.

The report warns that developing countries face a multi-year period of slow GDP growth driven by heavy debt burdens & weak investment.

Their latest forecast is reported here by the BBC

What is the World Bank?

The World Bank is an international financial institution that provides loans and grants to developing countries for the purpose of pursuing economic development and poverty reduction. It was established in 1944 along with the International Monetary Fund (IMF) as part of the Bretton Woods Agreement, which aimed to rebuild the global economic system following World War II. The World Bank is made up of two institutions: the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). The IBRD provides loans and other assistance to middle-income and creditworthy poor countries, while the IDA provides grants and low-interest loans to the poorest countries.

The biggest question currently facing the World Bank appears to be when, rather than whether it should step in to help the world's poorest economies. Whilst there are some, obvious examples of countries experiencing ongoing debt crises, like Zambia or Sri Lanka, other nations aren't far away from similar circumstances, such as Kenya where debt repayments account for 30% of government revenues.

However, the problem seems to be that any World Bank intervention is likely to require debt write-offs and that's something that doesn't sit easy within the process - not least because of the moral hazard involved.

So what's the solution? There isn't an ideal, but it is clear that international financial organisations are likely to play a more prominent role in the near future, and this might become part of the new 'normal' given the headwinds facing developing economies.