One of the leading global economic authorities issued a dire warning about the state of the world economy this week.
The World Bank, which loans hundreds of billions of dollars to public and private sector clients annually, said that higher interests rates have significantly slowed economic growth.
The World Bank predicted that globally, economic growth would drop from 3.1% to 2.1%, while advanced economies would see an even sharper drop from 2.6% to 0.7%, meaning that growth will be divided by almost four.
The sluggish growth numbers come as the Federal Reserve and other major financial institutions attempt to curtail inflation that has run rampant during the Biden administration, resulting in higher interests rates and slower economic growth.
As the economy have slowed due to increasing interest rates, there has also been uncertainty regarding the banking sector due to a series of recent collapses.
Three out of seven of the largest bank collapses in US history happened in just the last year after First Republic Bank, with $212 Billion in assets, collapsed alongside Silicon Valley Bank and Signature Bank, both which also had hundreds of billions in assets.
Economists have speculated that the war in Ukraine is also significantly harming the economy as well as pandemic aftershock that many countries are still experiencing.
“The world economy remains hobbled,” the World Bank said in the report. “Besieged by high inflation, tight global financial markets, and record debt levels, many countries are simply growing poorer.” It concluded.
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The World Bank said Tuesday that global economic growth has slowed sharply in the face of higher interest rates, chronic inflation and continued fallout from the banking crisis.
The world economy is expected to expand just 2.1% this year after growing 3.1% in 2022, the Washington-based institution said in its semiannual Global Economic Prospects report released Tuesday.
Advanced economies, including the U.S., are projected to also cool to a growth rate of just 0.7% this year – a marked drop from the 2.6% rate recorded in 2022 and one of the weakest growth rates in the last five decades, according to Indermit Gill, the World Bank Group’s chief economist and senior vice president.
“The global economy remains in a precarious state,” Gill told reporters.