Global economy in a 'precarious position,' the World Bank finds

The U.S. economy, the world's largest, could see expansion drop below 1% next year, the World Bank said on Tuesday 

June 6 (UPI) -- Global economic growth is on a sharp decline and the severity of the situation could easily trickle down to emerging markets, the World Bank said Tuesday.

The bank on Tuesday said the global economy is on pace to contract by 1% from 2022 to expand by only 2.1% this year. For emerging markets and developing economies, not including China, growth could drop from 4.1% last year to 2.9% this year.

Both of those forecasts represent deep downgrades from previous World Bank estimates.

"The world economy is in a precarious position," said Indermit Gill, the banks chief economist and senior vice president.

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Most major economies are facing headwinds from inflationary pressures that have lasted for more than a year. Energy prices last year were buoyed by sanctions targeting Russia's energy sector in response to the war in Ukraine, though prices for food and rents also spiked.

Meanwhile, some support programs designed to help lower-income families during the COVID-19 pandemic have ended. While that's certainly the case for developed economies with the means to fund such programs, developing economies are also seeing a trickle-down impact from global inflation.

"Many developing economies are struggling to cope with weak growth, persistently high inflation, and record debt levels," said Ayhan Kose, a deputy chief economist at the bank. "Yet new hazards - such as the possibility of more widespread spillovers from renewed financial stress in advanced economies - could make matters even worse for them."

For developing economies, the World Bank found the pandemic and the shocks from the war in Ukraine have been a setback and economic activity is on pace to drop by 5% relative to the start of the pandemic in late 2019.

"In low-income countries -- especially the poorest -- the damage is stark," the bank said. "In more than one-third of these countries, per capita incomes in 2024 will still be below 2019 levels."

In the advanced economies, meanwhile, growth in the United States, the world's largest economy, could dip below 1% by next year due in large part to the hike in lending rates from the Federal Reserve.

In Europe, the contraction is already apparent in a forecast for a 0.4% expansion in 2023, down from the 3.5% growth rate last year.