Can you afford not to prepare as World Bank’s economic forecast is slashed?

Yesterday, the World Bank released its latest economic forecast, which predicts that the world economy will grow by just 1.7% this year, the lowest growth figure since 1991.

Back in June 2022, the World Bank predicted 3% global economic growth for 2023, meaning the latest figure marks a significantly worse economic outlook for the year ahead.

The report also highlighted some of the key challenges for policymakers in 2023, with higher interest rates highlighted as one of them.

David Malpass, President of the World Bank, said the downturn would be “broad-based” and growth in people’s earnings in almost every part of the world was likely to “be slower than it was during the decade before Covid-19.”

Can businesses afford not to prepare?

Much has already been said about the importance of businesses preparing for the year ahead, but with the economic outlook appearing to be worse than first thought, failing to adequately prepare for the incoming recession could prove extremely costly for some companies.

After March, businesses will also have to continue with reduced support for energy bills, so this is another obstacle to be faced in 2023.

However, Oliver Rust, Head of Product at independent inflation data aggregator Truflation, does not believe the UK economy will suffer as much as feared in 2023.

He says: “The UK is certainly in a tough spot, but whether it will suffer more than any other economy in the G7 – and as much as Russia – I am not sure. Many European countries and also Japan are facing similar challenges and it seems unlikely the UK will be significantly worse off.

“But is the UK facing a challenging year? Undoubtedly. I think the energy crisis, property market decline (as a result of UK interest rates going up) and the lack of wage increases in the UK are going to combine to make life very difficult for most.

“How difficult will depend on a few factors, including how much further interest rates go up. The question is also when it will hit unemployment – which today stands at 3.7%. The number of employees increased over the last quarter but the number of self-employed workers has declined.

“Net-net, the unemployment rate only increased by 0.1%, which isn’t much considering the rates of inflation the UK has been facing. As such, we expect this number to increase before we see any improvement in the UK economy, potentially to around 6% before the tide begins to turn.

“Companies will look to mitigate costs and, while some supply chain costs will reduce thanks to government subsidies, the UK is a service-based economy whose biggest costs are staff. In the face of reduced use of those services, which we are already seeing thanks in part to months of rail-worker strikes, job cuts in the service sector can be expected.”