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Hope for elevating growth to pre-pandemic growth levels dissipated

Emerging Markets and Developing Economies (EMDEs) are projected to grow by just 3.4% in 2020-2024, and that is the lowest half-decade rate recorded in the past 30 years

By: Noha El Tawil

Wed, Aug. 16, 2023

As the WHO announced that COVID-19 was no longer an emergency, hope for higher rates of recovery grew bigger. What’s more, even though the Russia-Ukraine War is not over, such hope has not gone away, given that the world has begun to adapt, after already enduring the shock. Still, the World Bank’s prospects are not as optimistic, warning of many risks and lowering growth projections.



The World Bank estimated in its June report that the global economic growth accomplished earlier this year would fade away during its remainder because of the combined effects of the pandemic, the Russia-Ukraine War, and “sharp tightening of the monetary policy to contain high inflation.” As such, global growth is estimated to plunge from 3.1% in 2022 to 2.1% in 2023.

Emerging Markets and Developing Economies (EMDEs) are projected to grow by just 3.4% in 2020-2024, and that is the lowest half-decade rate recorded in the past 30 years.


Although EMDEs were slightly hit by banking turmoil in advanced economies, those with more significant macroeconomic policy vulnerabilities reflected in lower credit ratings have experienced slower growth and greater financial stress. That is manifested in large currency depreciations and a sharp widening of sovereign spreads.

Growth in advanced economies may substantially drop to 0.7%, and “remain feeble in 2024, due to monetary tightening, less favorable credit conditions, softening labor markets, and still-high energy prices.” On the contrary, aggregate growth in EMDEs is estimated to hit 4% in 2023 because of a rebound in China after easing pandemic-related mobility restrictions. Excluding China, EMDEs’ growth may just hit 2.9%. “By 2024, economic activity in EMDEs will still be about 5% below levels projected on the eve of the pandemic,” the report noted.

The bank warns that if “banking stress results in a severe credit crunch and broader financial stress in advanced economies, global growth in 2024 would only be 1.3%, about half the pace in the baseline forecast.” There is a worse scenario where “financial stress propagates globally to a far greater degree,” pushing the world into recession in 2024. The report highlighted that a global growth of only 0.3% would imply a contraction in global per capita GDP.


Inflation is estimated to persist above pre-pandemic levels beyond 2024. Hence, pertinent expectations in most inflation-targeting countries have almost not changed and “appear to remain anchored.”


Looking at prices, those of energy declined remarkably in the aftermath of their peak in 2022 due to weaker global growth projections and “a warmer-than-expected Northern winter, which reduced natural gas and electricity consumption.” On the other hand, metal prices rose in early 2023, which is a sign of “a stronger-than-anticipated recovery in China.” Similarly, “agricultural prices have been easing on the back of good production prospects for most crops.”

Global inflation is projected to gradually decrease as growth slows down, labor demand in many economies decreases, and commodity prices remain stable. “The slow pace of improvement means that core inflation is expected to remain above central bank targets in many countries throughout 2024,” the World Bank estimated. Nevertheless, if inflation goes up, more monetary tightening would cause financial stress.

The report commended the increasing credibility of central banks in EMDEs, saying it is instrumental to facing inflation, and warned that its erosion would have very serious implications.


Speaking of debt crises, the World Bank stipulated that, “Debt distress in various EMDEs, including low-income countries (LICs), high- lights the need for globally coordinated debt relief that overcomes the challenges posed by the increasing diversity of lenders. Sustained international cooperation is needed to accelerate the clean energy transition, help countries improve both energy security and affordability, and incentivize the investments needed to pursue a path toward resilient, low-carbon growth.

The global community also has a vital role to play in mitigating humanitarian crises stemming from food shortages and conflict.”


Global Trade

Global trade is experiencing a slowdown because of low global demand, and “continued rotation of consumption toward services.”


The growth of goods trade dropped in the first half of 2023, coupled with weakening global industrial production. By contrast, services trade kept growing, following the easing of pandemic-induced mobility restrictions. “International tourist arrivals are expected to approach 95% of 2019 levels in 2023, an increase from 63% in 2022,” the report showcased.


Prospects by Region

East Asia and Pacific (EAP)

Growth in the region is expected to record 5.5% in 2023 because of the recovery in China. Yet, in 2024 and 2025, it will fall to 4.6% and 4.5%, respectively, because of the slowdown in China, and that will be balanced by stability in other countries in the region.

Projections for China are growth of 5.6% in 2023, 4.6% in 2024, and 4.4% in 2025. The rate is the highest in the current year because of the reopening coupled with “accumulated excess savings,” which support household spending, particularly on contact-intensive services. The decline in growth in the following 2 years is primarily due to the fading of reopening effects.

As for investment growth, it is mainly stimulated by infrastructure projects and a gradual recovery in the property sector. Nevertheless, inflation in the country is likely to remain below target, because of the “economic slack.”

Growth in the EAP region, excluding China, is estimated to record 4.8% in 2023 and will be driven by domestic demand and spillover effects from China. Also, countries dependent on tourism will benefit from the upward trend in the industry globally.

Nonetheless, there are risks pertaining to “tighter-than-expected global financial conditions; stubbornly high inflation; protracted weakness in China’s property sector; geopolitical tensions; and, particularly for smaller economies, natural disasters, including climate change-related extreme weather events.”


Europe and Central Asia (ECA)

The region is grappling with the effects of the Russia-Ukraine War, as its growth plummeted to 1.2% in 2022. And, after excluding Russia and Ukraine, it stood at 4.8%. Projections are that growth will slightly go up to hit 1.4% in 2023. Such weakness is attributed to, alongside the invasion, high inflation, tight monetary policies, and feeble external demand. However, growth is speculated to rise to 2.7% in 2024, “as inflation gradually recedes and demand firms.”

Risks are escalation of the Russia-Ukraine War, “rising geopolitical tensions elsewhere in the region, higher and more sustained inflation, a sharper economic slowdown than expected in the region’s main trading partners, and further financial sector turmoil.”


Latin America and the Caribbean

Growth in the region is projected to sharply drop from 3.7% in 2022 to 1.5% in 2023. That is because monetary policy is likely to remain tight as a consequence of core and headline inflation staying “above central bank targets across the region.” That is in addition to the fact that “policy uncertainty in some countries is damaging business and consumer confidence.”

Risks are slower growth in major trading partners; tighter monetary policies; and renewed financial stress in advanced economies, incurring adverse spillovers in the region in the form of weaker trade or more restrictive financial conditions; as well as climate change.


Middle East and North Africa

Regional growth is estimated to plunge to 2.2% in 2023, with a slowdown being expected in both oil exporters and oil importers. “Growth in oil exporters is expected to slow sharply to 2% this year, reflecting lower oil prices and production, whereas growth in oil importers is projected to edge down to 3.4% due to high inflation, dollar shortages, and fiscal and monetary policy tightening,” the report speculated. Risks also include climate change as well as rising violence and social tensions that can be the outcome of high levels of unemployment in many countries in the region.

Egypt’s GDP is estimated to have grown by 6.6% in 2022, and is forecast to grow by 4% in each of 2023 and 2024, lower than anticipated in January by 0.5% and 0.8%, respectively. Yet, growth is speculated to hit 4.7% in 2025.


South Asia

Growth in the region is expected to decline to 5.9% in 2023 and 5.1% in 2024. That is in spite of unexpected resilience in private consumption and investment, and the robust growth in the services sector in India.

On the other hand, there are risks of negative impact ensued from possible tightening of monetary policy in advanced economies, as well as tightening of domestic microeconomic policies aimed at mitigating inflation or stabilizing foreign exchange reserves. There is also the risk of climate change. “The materialization of such risks could worsen economic and humanitarian crises in Afghanistan and Sri Lanka and/or give rise to crises in other economies in the region,” the report warns.

Sub-Saharan Africa

The region is expected to grow by just 3.2% in 2023 due to continued inflation, high borrowing costs, increased insecurity, and incomplete recovery from COVID-19 in many countries, elevated costs of living that reduce consumption, narrower fiscal space, surging import bills, and higher debts. Although the region is estimated to grow at a higher rate in 2024 and 2025, per capita incomes will not be rising much, which in turn, will not do much to push down extreme poverty.


*This article was published in our June - July 2023 issue. You can find our latest issue here