.... World Bank report predicts a sharp, long-lasting slowdown to hit developing countries
Liberia may be in danger if the World Bank's warning about a worldwide recession proves true in the face of increasing inflation, higher interest rates, and reduced investment.
Global growth, according to the World Bank, is expected to decelerate to 1.7 percent in 2023, the third weakest pace of growth in nearly three decades, overshadowed only by the global recessions caused by the pandemic and the global financial crisis.
“Russia’s invasion of Ukraine has added major new costs. The outlook is particularly devastating for many of the poorest economies where poverty reduction is already ground to a halt and access to electricity, fertilizer, food, and capital is likely to remain limited for a prolonged period,” World Bank President David Malpass said in a call with reporters yesterday.
The World Bank, in its Global Economic Prospects report, slashed its forecast for global growth this year by nearly half from its previous projection of 3 percent.
If the World Bank prediction is correct, it will be the third-weakest yearly expansion in 30 years, and with Liberia's economy vulnerable to external shock, any further spillovers from the economies of the United States, Europe, and China, which are all “undergoing a period of pronounced weakness”, would put a strain on Liberia's projected economic growth of 5.2 percent.
Liberia as a Sub-Saharan country — a region of Africa that is home to 60 percent of the world’s poor — is heavily reliant on external trade and financing, while suffering from limited economic diversification, elevated debt, and susceptibility to any declines in global commodity prices for its natural resources.
Revenues from the export of the country's natural resources including, among other things, iron ore, rubber, and timber, are expected to contribute a large share to the national budget of US$777.9 million — down by nearly US$29 million when compared with the US$806.5 million approved budget for the fiscal year 2022.
So any impact of a global downturn, as the World Bank is predicting, would fall particularly hard on poorer countries like Liberia, with sub-Saharan Africa experiencing a sharp, and long-lasting slowdown.
2 global recessions within a decade
Given the world's fragile economic conditions, any new adverse development — such as higher-than-expected inflation, abrupt rises in interest rates to contain it, or escalating geopolitical tensions — could push the global economy into recession, which would in turn affect Saharan Africa badly, the World Bank noted.
If this happens, it would mark the first time in more than 80 years that two global recessions have occurred within the same decade.
The World Bank has also predicted per capita income will grow just 1.2 percent in 2023 and 2024 in Saharan Africa, which is such a tepid pace that poverty rates could rise and Liberia would not easily be spared.
“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,” Malpass said. “Addressing the scale of these challenges will require significantly more resources for development and global public goods.”
Economic growth in Saharan Africa is expected to be at 3.6% in 2023 and rise to 3.9% in 2024; however, a deeper-than-anticipated slowdown of the global economy could cause sharp declines in global commodity prices, dampening growth in the region.
Global financial conditions could tighten more if global inflation pressures persist longer than expected, leading to higher borrowing costs and a higher risk of debt distress in many Saharan African economies, the World Bank said.
It added that the region's food systems, already stressed by elevated costs of farming inputs and weather-induced production losses, remain particularly vulnerable to further disruptions that could lead to surging food prices and increased food insecurity.
“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,” said Ayhan Kose, Director of the World Bank’s Prospects Group.
With 2023 being an election year for Liberia, any internal or external economic shocks could pose a serious challenge to the incumbent Weah Administration and serve as campaign fodder for the political opposition.
Considering what happened in 2020 when Liberia’s economy contracted by 3.0 percent in 2020 due to the COVID-19 pandemic and Inflation soaring to 17%, the Weah administration lost massively during the mid-term senatorial election that year, as opposition candidates gained a majority in the Senate and gained legislative seats in key constituencies of the ruling party, including Montserrado County.
Meanwhile, the World Bank report has also noted that rising interest rates in developed economies like the United States and Europe will attract investment capital from poorer countries, thereby depriving them of crucial domestic investment.
At the same time, the report said, those high-interest rates will slow growth in developed countries at a time when Russia’s invasion of Ukraine has kept world food prices high.
Big three slowdown
According to the AFP, the report followed a similarly gloomy forecast a week earlier from Kristina Georgieva, the head of the International Monetary Fund, the global lending agency.
Georgieva estimated, on US news network CBS's Face the Nation, that one-third of the world will fall into recession this year, AFP reported.
“For most of the world economy, this is going to be a tough year, tougher than the year we leave behind,” Georgieva said. “Why? Because the three big economies – US, EU, China – are all slowing down simultaneously.”
The big three slowdowns come as the World Bank has projected that the European Union’s economy will not grow at all next year after having expanded by 3.3 percent in 2022. It foresaw China growing 4.3 percent, nearly a percentage point lower than it had previously forecast and about half the pace that Beijing posted in 2021.
In the United States, growth is forecast to fall to 0.5% in 2023—1.9 percentage points below previous forecasts and the weakest performance outside of official recessions since 1970. In 2023, according to the World Bank, euro-area growth is expected at zero percent—a downward revision of 1.9 percentage points. In China, growth is projected at 4.3% in 2023—0.9 percentage points below previous forecasts.
Excluding China, it added that growth in emerging markets and developing economies is expected to decelerate from 3.8% in 2022 to 2.7% in 2023, reflecting significantly weaker external demand compounded by high inflation, currency depreciation, tighter financing conditions, and other domestic headwinds.
Other economists have also issued bleak outlooks, though most of them are not quite as dire. Economists at JPMorgan are predicting slow growth this year for advanced economies and the world as a whole, but they do not expect a global recession.
“The global expansion will turn into 2023 bent but not broken,” the JPMorgan report said.