The global economy market have become susceptible to additional shocks, vulnerabilities and increasing risk of low creditworthiness in emerging market due to the elevated global interest rate and the high degree of burdens of high interest rates weighing heavily on various economies.
This is even as the global economy and emerging markets developing economies have lost access to international bond market due to tightening credit conditions, mounting debt pressures and fiscal weaknesses that have pushed low income countries into debt distress.
Experts affirmed that urgent measures are needed to address these challenges and safeguard economic stability, poverty reduction efforts, and achieve sustainable development goals.
This growth projections for 2023 is less than half of what they were a year ago.
According to latest report from World Bank, the experts believe that the global economy is now in a fragile state far from the dynamism required to address poverty, climate change and human capital replenishment.
The report from the World Bank revealed a significant slowdown in global growth and increasing financial risks in emerging market and developing economies (EMDEs) due to elevated global interest rates.
The projected global growth rate for 2023 has been revised down to 2.1 per cent, with EMDEs, excluding China, expected to experience a slowdown to 2.9 per cent. These downward revisions affect a majority of EMDEs and advanced economies, raising concerns about poverty reduction and job creation.
The cumulative impact of the pandemic on global trade and the Russian invasion of Ukraine, and the global economic slowdown has dealt a long-lasting blow to EMDEs, with economic activity expected to remain about 5 per cent below pre-pandemic levels by the end of 2024.
Per capita incomes in more than a third of low-income countries will still be below 2019 levels in 2024, exacerbating extreme poverty. Developing economies, burdened by weak growth, high inflation, and record debt levels, are facing numerous challenges. There is a pressing need for timely action by policymakers to prevent financial contagion and mitigate domestic vulnerabilities.
Advanced economies are also affected, with growth forecasted to decelerate in 2023 and remain weak in 2024. The U.S. economy is expected to slow to 0.8 per cent in 2024 due to the lingering effects of rising interest rates, while the euro area is projected to experience a slowdown to 0.4 per cent in 2023.
The report highlighted the adverse financial effects of U.S. interest rate increases on EMDEs, particularly countries with greater economic vulnerabilities. Frontier markets, characterised by less developed financial markets and limited access to international capital, face significant increases in borrowing costs.
The report additionally underscored the fiscal challenges faced by low-income economies, as rising interest rates have exacerbated their fiscal positions over the past decade.
With public debt averaging around 70 per cent of GDP and limited government revenues, interest payments are consuming a larger share of resources. Fourteen low-income countries are already in or at high risk of debt distress.
These economies struggle with rising spending pressures and are more susceptible to distress caused by adverse shocks, given their limited social safety nets.
Overall, the global economy is on a precarious footing, with the burden of high interest rates weighing heavily on various economies. Urgent measures are needed to address these challenges and safeguard economic stability, poverty reduction efforts, and sustainable development goals.
