Home ›› 05 May 2023 ›› Editorial
A number of International organizations such as World Bank, IMF, ADB regularly assess the global economic prospects from time to time.
On the basis of their reports different countries, both developed, developing and emerging nations make plan as to how these economies would face the impending projections. In the beginning of 2023 a similar type of projection was made for the economic performance during 2023-24.
Based on those projections this write up has been prepared for the world as a whole and performance of the South Asian economies.
Global economic prospects reports predicted a sharp economic slowdown due to the sustaining high inflation, high interest rates, reduced investments and disruption caused by Russia’s invasion of Ukraine. The already fragile economic conditions got a further push due to adverse rise in inflation beyond expected level, a sudden increase in interest rates, a resurgence of COVID-19 pandemic and geopolitical crises aggravated the global economy.
According to various reports the global economy is projected to grow by 1.7 per cent in 2023 and by 2.7 per cent in 2024.
The revised projection has been made for 2023 for 95 per cent of the developed economies and around 70 per cent of the emerging and developing economies.
The per capita income is to grow at 2.8 per cent in emerging markets and developing countries. It has been projected that Sub–Sahara Africa region would grow during 2023-24 at 1.2 per cent where 60 per cent of the world’s extreme poor live. This growth rate would cause poverty rate to rise.
With further deterioration of the pattern of global growth emerging and developing economies are to face a multi-dimensional crisis.
Developing countries are to face a period of slow growth driven by heavy debt servicing burdens and poor investment as the world capital is absorbed by advanced economies. Poor growth and poor investment would compound the already devastating situation in education, health, poverty, infrastructure and increasing demand for climate change.
Advanced economies are poised to achieve a slow growth from 2.5 per cent in 2022 to 0.5 per cent in 2023. Continuation of this rate of slow down over the last two decades had compounded the already existing recession. In the US growth is forecast to fall to 0.5 per cent in 2023. In the Euro region growth is expected to be at Zero percent. In China growth is projected at 4.3 per cent in 2023. Excluding China, growth in emerging markets and developing countries would go down from projected 3.8 per cent in 2022 to 2.7 per cent in 2023. The reasons behind fall in growth have been attributed to high inflation, currency depreciation, tighter financial policies and many other factors. By the end of 2024 GDP in emerging and developing economies would be around 6 per cent below the expected levels before the pandemic. Inflation would remain almost static, but would be above pandemic level.
An assessment of the medium –term investment growth has been made in the emerging and developing countries. Gross investment in these economies is likely to grow by around 3.5 per cent on average, which is half of the previous rates of two decades. However, a direction has been given for Policy makers to accelerate investment growth. Subdued investment is a matter of serious concern because it is associated with weak production and trade and dampens overall economic prospects. Without higher investment growth, it becomes impossible to make a meaningful progress in achieving higher development and climate related goals. To achieve high investment necessary support from fiscal and monetary policies is required to reform the investment climate.
Global economic projection by Asian Development Bank indicates a different picture. The projection indicated that growth in the GDP of Asia and the Pacific would be 4.2 per cent in 2022, 4.8 per cent in 2023 and 4.8 per cent in 2024. A faster growth has been projected in the developing economies of Asia and the Pacific region, during 2023 due to easing of COVID-19 pandemic restriction on tourism, consumption and investment. South Asia’s regional growth prospect has been brightened due to China’s Zero- COVID Strategy. Higher consumption as well as higher investment have been boosting economic recovery offsetting the impact of high food and energy prices caused by Russian invasion.
Further tourism and remittances from abroad are showing an upward trend gradually to reach pre-pandemic level.
37 small states with population of less than 1.5 million or less face a dilemma. These countries suffered heavily during COVID-19 pandemic, recession and very weak rebound because of prolonged disruptions to tourism. Economic output fell by more than 11 per cent. These small states face disaster related losses that amounted to average 5 per cent of GDP per year. This creates serious obstacles to economic development. Policy makers in small states can improve growth prospects be resilience to climate change, fostering economic diversification and improving efficiency.
Let us now set our eyes on to the South Asian Countries’ economic prospect for 2023-24. South Asian Economic Analysis throws some pattern of economic performance. The region continues to suffer by shock arising from Russian invasion of Ukraine. The war has aggravated the already higher food and energy prices.
Tighter financial policy stands to contain inflation has left a negative impact on the economies of the region. Even then several economies maintained resilient growth despite the global economic backdrop. In India, output growth expanded by 9.7 per cent on an average basis during first half of 2022-23 indicating strong private consumption and fixed investment growth.
Other economies faced difficult developments and global spillovers. Bangladesh was priced out of global energy markets and unable to meet the energy needs of households and businesses leading to load management and cut the operational time of factories. Shortly Bangladesh will have to service her debt.
This will create a further pressure on the foreign exchange reserve. Restrictions imposed on imports of luxury items to lessen pressure on foreign currency have little impact on the foreign exchange reserve. ADB has projected Bangladesh’s GDP to grow by 5.3 per cent in 2023 down from 6.6 per cent projected earlier.
The slower growth forecast reflects subdued domestic demand and weaker export performance due the slow global growth followed by Russian invasion. Sri-Lanka’s output fell by 9.2 per cent in 2022 mainly due to shortage of foreign exchange for food and fuel imports and to service external debts. Sudden halt in aid flow to Afghanistan in 2021 has shaken the foundation of the economic activities there.
Growth in the South Asian Region (SAR) has been projected to be around 5.5 per cent in 2023 from 6.1 per cent in the previous year. However, by 2024 the growth might pick up to 5.8 per cent.
It has been projected that the SAR of India, Maldives, and Nepal might have achieved a satisfactory growth despite severe flooding in Pakistan and economic and political crises in Afghanistan and Sri-Lanka. Growth in India is projected to slow down to 6.9 per cent in 2022-23. Pakistan has been forecasted to grow at 2.0 per cent in 2022-23 mainly due to negative impact of the flood and political uncertainty.
In Bangladesh growth is expected to slow down to around 5.2 per cent in 2022-23 due to rising inflation and negative impact on household incomes and firms, higher input costs as well as energy shortages, import restrictions on-essential items and heavy imports of LNG followed by tighter monetary policy.
Regions of South Asia to remain under risk of food insecurity and climate change. One third of the global poor live in the SAR where food accounts for a greater share of the consumption basket compared to other emerging and developing economies. Although global food price inflation appears to have subsided, the risk of increased deprivation and inadequate nutrition remain elevated.
A protracted Russian invasion of Ukraine could stoke renewed spikes a commodity price and global inflation and induce tightening of monetary policy. Climate change is a significant threat in the region. The recent flood in Pakistan has caused a damaged to about 4.8 per cent of Pakistan’s GDP. Extreme weather could exacerbate food deprivation, cut the region from essential supply chain, destroy the region’s infrastructure and impede agricultural production.
The writer is Former Director General, Export Promotion Bureau. He can be contacted at hassan.youngconsultants@gmail.com
