By Tom Burnett CFA
On June 7, 2022, the World Bank released its mid-year economic forecast report, updating the estimates from it January 2022 report. All the major economic regions have been downgraded in terms of economic growth as defined by GDP (Gross Domestic Product). We note that the latest projections also forecast lower growth rates than the IMF April report. The downward revisions are material and widespread. The major growth headwinds are stubborn inflation, record high energy prices, slowdowns in China due to Covid-19 restrictions, and the growing conflict between Russia and Ukraine. All the growth estimates are for real GDP.
The World Bank now sees global GDP growth of 3.0% in 2022, down from 4.2% expected in its January report. This 3.0% figure for global growth is also lower than the 3.6% forecast in the April IMF report. The World Bank now expects growth of 3.0% in 2023, down from an anticipated 3.2% estimate in its January report.
GDP growth in the U.S. is now forecast at 2.6% in 2022, down from 3.8% projected in the January report. The forecast for 2023 is now 2.2%, avoiding a recession, but a slowdown from 2021-22 recoveries.
The forecast for the EU is negative GDP growth (recession) of (2.8%), down by 5.9% from the January forecast when positive GDP growth was expected. The April IMF report had growth of 2.8% forecast, but the Russian invasion of Ukraine has had a material negative impact on EU economic prospects.
The World Bank now sees China growing at a 4.3% rate in 2022, down from a rate of 5.1% in its January report. China is now forecast to grow GDP by 5.2% in 2023.
World trade volumes are now expected to grow by 4.0% in 2022, down from a rate of 5.8% in the January report.
The latest report warns that the major economies of the world face the prospect of ‘stagflation’, as inflation remains high and economic growth slows down. A recession in the U.S. is not certain, but the probabilities are increasing as the Federal Reserve is forced to raise interest rates to curtail inflation. All the economic regions are under pressure and the uncertainties relating to inflation and the Russian-Ukraine conflict make it difficult to forecast positive global growth.
Tom Burnett CFA is Director of Research