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    Inflation peaks, growth slows

    Danial Norjidi

    Economic growth in the East Asia and Pacific region is expected to increase to 4.3 per cent in 2023 and 4.9 per cent in 2024, according to a regional outlook in the World Bank’s January 2023 Global Economic Prospects report.

    Touching on recent developments, the report stated that after a strong rebound in 2021, growth in the East Asia and Pacific region slowed markedly in 2022 to an estimated 3.2 per cent, down 1.2-per-cent from previous forecasts.

    The World Bank also noted that consumer price inflation increased across the region in 2022, highlighting that notwithstanding this increase, price pressures have been generally more muted in East Asia and the Pacific than in other regions.

    “This partly reflects remaining negative output gaps due to a combination of relatively high potential growth and protracted recovery as well as widespread price controls and subsidies.” Meanwhile, global growth has been described in the study as “slowing sharply in the face of elevated inflation, higher interest rates, reduced investment, and disruptions caused by the situation in Ukraine”.

    “Given fragile economic conditions, any new adverse development – such as higher-than-expected inflation, abrupt rises in interest rates to contain it, a resurgence of the COVID-19 pandemic, or escalating geopolitical tensions – could push the global economy into recession. This would mark the first time in more than 80 years that two global recessions have occurred within the same decade,” noted a press statement.

    According to the report, the global economy is projected to grow by 1.7 per cent in 2023 and 2.7 per cent in 2024. “The sharp downturn in growth is expected to be widespread, with forecasts in 2023 revised down for 95 per cent of advanced economies and nearly 70 per cent of emerging market and developing economies

    “Over the next two years, per-capita income growth in emerging market and developing economies is projected to average 2.8 per cent – a full percentage point lower than the 2010-2019 average.

    “In Sub-Saharan Africa – which accounts for about 60 per cent of the world’s extreme poor – growth in per capita income over 2023-24 is expected to average just 1.2 per cent, a rate that could cause poverty rates to rise, not fall”.

    Growth in advanced economies is projected to slow from 2.5 per cent in 2022 to 0.5 per cent in 2023.

    “Over the past two decades, slowdowns of this scale have foreshadowed a global recession.

    “In the United States (US), growth is forecast to fall to 0.5 per cent in 2023 – 1.9 percentage points below previous forecasts and the weakest performance outside of official recessions since 1970.

    “In 2023, euro-area growth is expected at zero per cent – a downward revision of 1.9 percentage points. In China, growth is projected at 4.3 per cent in 2023 – 0.9 percentage point below previous forecasts.

    “Excluding China, growth in emerging market and developing economies is expected to decelerate from 3.8 per cent in 2022 to 2.7 per cent in 2023, reflecting significantly weaker external demand compounded by high inflation, currency depreciation, tighter financing conditions, and other domestic headwinds.”

    The report further noted that by the end of 2024, GDP levels in emerging and developing economies will be roughly six per cent below levels expected before the pandemic.

    Although global inflation is expected to moderate, it will remain above pre-pandemic levels.

    The report is also described as offering a comprehensive assessment of the medium-term outlook for investment growth in emerging market and developing economies. It states that over the 2022-2024 period, gross investment in these economies is likely to grow by about 3.5 per cent on average – less than half the rate that prevailed in the previous two decades.

    The report laid out a menu of options for policy makers to accelerate investment growth.

    “The crisis facing development is intensifying as the global growth outlook deteriorates,” World Bank Group President David Malpass said in a press statement.

    “Emerging and developing countries are facing a multi-year period of slow growth driven by heavy debt burdens and weak investment as global capital is absorbed by advanced economies faced with extremely high government debt levels and rising interest rates.

    Weakness in growth and business investment will compound the already-devastating reversals in education, health, poverty, and infrastructure and the increasing demands from climate change.”

    Meanwhile, World Bank’s Prospects Group Director Ayhan Kose said, “Subdued investment is a serious concern because it is associated with weak productivity and trade and dampens overall economic prospects. Without strong and sustained investment growth, it is simply impossible to make meaningful progress in achieving broader development and climate- related goals.

    “National policies to boost investment growth need to be tailored to country circumstances but they always start with establishing sound fiscal and monetary policy frameworks and undertaking comprehensive reforms in the investment climate.”

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