World Bank’s Global Economic Prospects, June 2023

The world economy still “in a precarious state”. The comprehensive analysis, written by the team headed by Ayhan Kose, is here.

After growing 3.1 percent last year, the global economy is set to slow substantially in 2023, to 2.1 percent, amid continued monetary policy tightening to rein in high inflation, before a tepid recovery in 2024, to 2.4 percent. Tight global financial conditions and subdued external demand are expected to weigh on growth across emerging market and developing economies (EMDEs). Inflation has been persistent but is projected to decline gradually as demand weakens and commodity prices moderate, provided longer-term inflation expectations remain anchored. Global growth could be weaker than anticipated in the event of more widespread banking sector stress, or if more persistent inflation pressures prompt tighter-than-expected monetary policy. Weak growth prospects and heightened risks in the near term compound a long-term slowdown in potential growth. This difficult context highlights a multitude of policy challenges. Recent bank failures call for a renewed focus on global financial regulatory reform. Global cooperation is also necessary to accelerate the clean energy transition, mitigate climate change, and provide debt relief for the rising number of countries experiencing debt distress. At the national level, it is imperative to implement credible policies to contain inflation and ensure macroeconomic and financial stability, as well as undertake reforms to set the foundations for a robust, sustainable, and inclusive development path.

One particularly interesting chapter examines spillovers of US monetary policy and interest rates to the rest-of-the-world (written by Carlos Arteta, Steve Kamin, and Franz Ulrich Ruch).

The rapid rise in interest rates in the United States poses a significant challenge to emerging market and developing economies (EMDEs). As the Federal Reserve has pivoted toward a more hawkish stance to rein in inflation, a substantial part of the sharp increases in U.S. interest rates since early 2022 has been driven by shocks that capture changes in perceptions of the Fed’s reaction function. These reaction shocks are associated with especially adverse financial market effects in EMDEs, including a higher likelihood of experiencing a financial crisis. Their effects also appear to be more pronounced in EMDEs with greater economic vulnerabilities. These findings suggest that major central banks can alleviate adverse spillovers through proper communication that clarifies their reaction functions. They also highlight that EMDEs need to adjust macroeconomic and financial policies to mitigate the negative impact of rising global and U.S. interest rates.

A key figure, showing how different shocks have different implications for EMDEs, is shown below.

The entire report is here.

6 thoughts on “World Bank’s Global Economic Prospects, June 2023

  1. ltr

    June 12, 2023

    China-Swiss chip deal poke in the eye for US
    Multibillion-dollar joint venture in Chongqing shows not everyone in the West is willing to ignore business opportunities simply on Washington’s say-so

    Europe’s second-largest chip maker has entered a Chinese multibillion-dollar joint venture. STMicroelectronics will jointly invest with China’s Sanan Optoelectronics to build a US$3.2 billion chip plant in the southwestern mega-city of Chongqing. The new venture will even dwarf the US$2 billion Shanghai plant committed by American electric vehicle mogul Elon Musk back in 2019. It aims to support the country’s rising domestic demand for silicon carbide (SiC) devices in electric vehicles as well as other industrial power and energy sectors. But it is also highly symbolic at a time of the US-China chip war, with America pressuring European governments and companies to take a side.

    The Geneva-based company has demonstrated foresight as well as courage in sealing this against-the-herd deal. But it also shows that China is too big a market to ignore simply on Washington’s say-so. China’s world-beating electric car sector and other industries are growing at a fast pace. Sales of new e-vehicles in China almost doubled to 6.9 million units last year, according to the China Association of Automobile Manufacturers. Under the latest deal, still subject to regulatory approval, Sanan Optoelectronics will also build and operate a separate new SiC manufacturing facility. SiC is a key ceramic component in the semiconductor industry that caters to electric cars, rail transport, as well as wind and solar power devices….

  2. ltr

    Honduras in 2009 was the 2nd poorest country in Latin America. President Manuel Zelaya had proposed a set of land reforms that would free up land for poor agricultural workers, but the reforms were threatening to the largest land owners and a military coup was engineered. The United States flew Zelaya from the country to rescue him, then supported a coup selected president. Subsequent years were difficult in Honduras, and finally an independent candidate was elected President – that was the wife of Zelaya, Xiomara Castro.

    Castro is a determined President, and for a model and support Castro has chosen to look to China. There will soon be a free trade agreement, Honduras is part of the BRICS bank, part of the Belt and Road Initiative… Castro has already negotiated culture and education exchanges, and technology investments.

  3. ltr

    June 11, 2023

    China-Honduras trade ties grow ‘faster than expected’ with BRI cooperation, potential FTA in focus

    Trade cooperation between China and Honduras is strengthening at a rapid pace as agricultural trade, a free trade agreement (FTA) and cooperation under the China-proposed Belt and Road Initiative (BRI) are high on the agenda of the ongoing state visit of Honduras’ president to China.

    Such fast development, coming just months after the two countries established diplomatic relations, demonstrates that pragmatic cooperation is moving faster than expected, observers said, predicting that more concrete deals will come soon amid increased political trust.

    On Sunday, the First China-Honduras High-Level Entrepreneur Exchange Conference was held in Beijing, during which entrepreneurs actively sought cooperation opportunities in agriculture, technology, finance and other areas, as they are eager to learn about each other’s policy landscape and market demands….

    June 13, 2023

    Xi, Xiomara Castro chart course for China-Honduras ties at historic meeting

    1. pgl

      I bet you do not have a clue what Honduras exports. Bananas and coffee. Now is China going to be importing a lot more bananas and coffee? The US already does.

      But I guess Xi had to make some sort of gesture once he figured out that Taiwan was trying to help Honduras out.

  4. ltr

    I bet you do not have a clue what Honduras exports.
    I bet you do not have a clue what Honduras exports.
    I bet you do not have a clue what Honduras exports.

    [ Enough of being a crazed bully. Enough of the vicious attempts at intimidation. Enough. ]

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