By Emma Wu
The World Bank made a 2023 projection of 3% world economic growth. Now, the World Bank has slashed that percentage to 1.7%, making this the third-weakest rate of growth in nearly 3 decades. These worsening economic conditions can be due in part to rapidly inflating prices, as well as tighter monetary policies from central banks around the world.
Price inflation is no surprise; however, the rate at which items are growing in cost contributes greatly to a declining economic prosperity. Coming out of the pandemic, many items suddenly grew in price, given the increase in demand and object scarcity. This combination led to vast inflation, resulting in difficulties in affordability. Not only have the consumers found themselves in a difficult situation with low affordability, but small businesses depending on some of these products have also been struggling. With fewer customers, lower income, and higher costs, these small businesses are unable to sustain themselves, leading to struggling and closing small businesses, both during and coming out of the pandemic. With small businesses closing, larger companies suddenly find themselves in a stronger position to control prices in the marketplace. Therefore, this leads to another growth in price, coming from monopolies. Thus, these circumstances all lead to the rapidly inflating prices that are seen today.
To curb inflation, banks established tighter monetary policies. A tight monetary policy is aimed at keeping inflation under control by increasing interest rates. On the contrary, a loose monetary policy aims to stimulate the economy by lowering interest rates. During the pandemic, tighter monetary policies were utilized by central banks from around the world to curb inflation. These may have been necessary to keep inflation rates under control, but they have also contributed to a “significant worsening of global financial conditions, which is exerting a substantial drag on activity,” says the World Bank.
China’s reopening may be a key variable in the world economic recovery. With the faster-than-expected reopening of China, there are many outcomes that can result. If the reopening results in major outbreaks of COVID-19 that overburden the health sector and sap confidence, then the economic recovery of China may be delayed significantly. On the other hand, China is big enough by itself to lift the global supply and demand, helping the world economy recover significantly. The projections for the world economy appear to be bleak, but there are still many chances to help us get back on track.
