World Bank predicts slowdown in economic growth for Barbados

The World Bank is warning that inflation in Barbados and the rest of the Latin America and Caribbean region could remain high in the coming months, requiring measures that will suppress short-term growth.

The Washington-based financial institution pointed to this risk as it presented its latest Global Economic Prospects report which showed that after an estimated modest 10 per cent economic growth in 2022, the rate of growth for the Barbados economy is expected to slow to an estimated 4.8 per cent this year.

It is further forecasting economic growth of 3.9 per cent for Barbados in 2024.

The World Bank said in the report which was released on Tuesday that growth in the wider Latin America and Caribbean region is expected to decelerate sharply to around 1.3 per cent this year before recovering, somewhat, to 2.4 per cent in 2024.

It noted that the slowdown reflects efforts by monetary authorities to tame inflation and spillovers from a weak global outlook.

“Sluggish growth in the United States and China is expected to curtail export demand while rising US interest rates are likely to keep financial conditions restrictive. Slow global growth is expected to weigh on commodity prices, weakening South America’s terms of trade. Regional investment is expected to decline this year, dampened by higher financing costs, soft business confidence and elevated policy uncertainty,” it explained.

Latin America and the Caribbean is estimated to have grown 3.6 per cent last year.

The World Bank noted that risks to the outlook were skewed to the downside, noting that “weaker than anticipated global growth could weigh heavily on commodity prices, undermining economic activity in the region’s commodity exporters”.

It warned that “further tightening of global financial conditions could also lead to financial stress in the region’s more vulnerable economies”, while indicating that although global inflation is expected to be moderate it will remain above pre-COVID-19 levels.

“Domestic inflation in Latin America and the Caribbean could prove more persistent than anticipated, risking a move up in long-term inflation expectations. Bringing inflation durably under control could then require additional large interest rate increases. While potentially necessary, this could further suppress near-term growth,” the World Bank warned.

“More broadly, the baseline forecast indicates stagnating living standards in the first half of the 2020s, with average per capita GDP [gross domestic product] growth of 0.6 per cent per year over 2020-24. This could make it harder to combat a wide range of social issues, worsening barriers to sustained, inclusive development in Latin America and the Caribbean,” it added.

The financial institution also noted that global growth is slowing sharply in the face of elevated inflation, higher interest rates, reduced investment and disruptions caused by Russia’s invasion of Ukraine.

“Given fragile economic conditions, any new adverse development such as higher than expected inflation, abrupt rises in interest rates to contain it, a resurgence of the COVID-19 pandemic or escalating geopolitical tensions, could push the global economy into a recession,” it said. “This would mark the first time in more than 80 years that two global recessions have occurred within the same decade.”

In its assessment of the medium-term outlook for investment in emerging markets and developing economies, the World Bank said over the 2022 to 2024 period, gross investment is likely to grow about 3.5 per cent on average – less than half the rate in the previous two decades.

The global economy is projected to grow by 1.7 per cent this year and 2.7 per cent next year.

The World Bank is also predicting that over the next two years, per-capita income growth in emerging markets and developing economies would average around 2.8 per cent, a percentage point lower than the 2010 to 2019 average.

According to President of the World Bank Group David Malpass, the crisis facing development is intensifying as the global growth outlook deteriorates.

“Emerging and developing countries are facing a multi-year period of slow growth driven by debt burdens and weak investment as global capital is absorbed by advanced economies faced with extremely high government debt levels and rising interest rates,” said Malpass.

“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,” he added. (MM)