Financial Situation in China’s growth is anticipated to improve moderately in 2023 after underperforming expectations in 2022. Due to repeated COVID-19 lockdowns and ongoing stress in the property sector, the economy expanded by only 3 percent last year. With the Government ending its zero-COVID-19 approach in late 2022 and adopting looser monetary and fiscal policies, growth is projected to rise to 4.8 percent in 2023. However, the reopening process of Financial Situation is likely to be uneven, and output will remain well below the pre-pandemic pace of 6 to 6.5 percent.

The economic rebound in East Asia remains fragile, though growth is stronger than in many other regions. GDP in East Asia is forecast to increase by 4.4 percent in 2023, compared with 3.2 percent in 2022, largely due to China’s modest recovery. Still, several economies in the region (excluding China) are slowing as pent-up demand fades, living expenses climb, and export orders from the U.S. and Europe weaken. At the same time, tighter global financial conditions are prompting countries to pursue restrictive monetary and fiscal policies to contain inflation. While China’s recovery will provide some support, fresh waves of COVID-19 infections could temporarily hinder growth.

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In South Asia, the outlook has worsened considerably, weighed down by elevated food and energy costs like Financial Situation, stricter monetary policies, and fiscal weaknesses. Regional GDP growth is expected to ease from 5.6 percent in 2022 to 4.8 percent in 2023. India is projected to remain relatively resilient with growth of 5.8 percent, though this is lower than the 6.4 percent estimated in 2022, as higher interest rates and weaker global demand dampen investment and exports. Conditions are more difficult for other South Asian economies, with Bangladesh, Pakistan, and Sri Lanka all seeking IMF support in 2022.

In Western Asia, oil exporters have rebounded from the downturn, benefitting from high crude prices, greater production, and a revival in tourism. In contrast, recovery among non-oil exporters remains subdued due to limited access to global finance and severe fiscal constraints. Regional growth is forecast to slow from 6.4 percent in 2022 to 3.5 percent in 2023 as external conditions worsen.

Across Africa, growth is expected to stay weak as global volatility compounds domestic strains. The region faces multiple shocks, including weaker demand from key partners (notably China and Europe), surging food and energy prices, rising borrowing costs, and adverse climate events. Mounting debt obligations are forcing many governments to turn to bilateral and multilateral assistance of Financial Situation. GDP growth is projected to slow from 4.1 percent in 2022 to 3.8 percent in 2023.

Prospects in Latin America and the Caribbean remain difficult amid unfavorable global conditions, limited policy flexibility, and stubborn inflation. The region is expected to grow by just 1.4 percent in 2023, compared with 3.8 percent in 2022. Labor market challenges persist, and poverty reduction will likely stall. The region’s largest economies — Argentina, Brazil, and Mexico — are projected to expand at very modest rates due to tighter financial conditions, weaker exports, and domestic weaknesses.

For the least developed countries, many of which are highly exposed to external shocks, 2023 will bring serious hurdles. Growth is expected at 4.4 percent, about the same as last year but well below the 7 percent target set under SDG 8. Limited production capacity, narrow fiscal space, macroeconomic imbalances, and growing debt pressures are raising the risk of a “lost decade” for many of these economies.

The short-term picture of Financial Situation for small island developing States also remains bleak. Tourism has yet to fully recover, while these countries continue to be disproportionately vulnerable to rising climate risks and natural disasters.

Central banks intensify their fight against inflation

After years of price stability, many economies are now facing high inflation, hitting low-income households the hardest. Pandemic-driven price pressures — with demand bouncing back faster than supply amid ongoing disruptions — have proven persistent. The surge in food and energy costs, coupled with renewed supply shocks from the war in Ukraine, has fueled inflation and pushed up expectations for both the near and medium term as Financial Situation. Global inflation in 2022 reached its highest level in twenty years, with strong upward pressures continuing.

Price pressures are expected to ease due to strict monetary tightening and weakening demand, yet global inflation is still anticipated to stay high in 2023.
During 2022, central banks across the globe increased interest rates rapidly in an effort to rein in inflation and stabilize inflation expectations. This transition to tighter monetary policy was unusually widespread. More than 85 per cent of central banks worldwide raised rates over the past year. The U.S. Federal Reserve spearheaded the global tightening cycle, raising its benchmark rate six times—from 0–0.25 per cent in March to 4.25–4.5 per cent in December 2022. This marked the sharpest yearly increase since 1980. With inflation likely peaking towards the end of 2022, central banks, especially in advanced economies, are expected to slow down the pace of hikes in 2023, particularly if inflation nears their respective targets.

Rising debt and external payment risks
The swift and steep rise in interest rates, persistent geopolitical strains, and a worsening global outlook have prompted a “flight to safety” in many economies, reflected in the reversal of foreign portfolio investments and the depreciation of local currencies against the U.S. dollar. Weaker currencies have pushed up import costs and worsened inflationary pressures in many developing nations. At the same time, tighter global financial markets have driven up borrowing costs and refinancing risks, negatively impacting investment and growth outlooks.

The rapid tightening of global credit conditions has deepened balance of payment and debt-related risks in numerous developing economies. Many commodity-importing nations have faced a sharp rise in external financing requirements in recent years. With sovereign borrowing costs climbing, external debt servicing has become more burdensome, consuming a larger portion of government revenues. The rising cost of debt repayment is crowding out critical spending needed for economic recovery, protecting vulnerable populations amid the cost-of-living crisis, and advancing sustainable development.

In Africa, servicing of public and publicly guaranteed external debt reached an average of 10 per cent of government revenues in 2021—up from 3 per cent in 2011. Moreover, tighter financial conditions are making it harder for many developing economies to refinance or restructure debt, heightening the risks of sovereign defaults. An increasing number of developing countries, including those with large populations living in poverty, now face fragile debt positions.

Another setback for the Sustainable Development Goals
Employment rebounded in 2022 from pandemic lows, though unevenly across regions. In many advanced economies, labour markets became extraordinarily tight, with unemployment rates at historic lows alongside record-high employment and job vacancies. Yet industries such as construction, ICT, and hospitality continued to grapple with major labour shortages. By contrast, most developing nations experienced weaker job recoveries, with significant underemployment still present. On average, unemployment rates in these countries during 2022 remained above pre-pandemic levels. The steep job losses faced by women in 2020 have yet to be fully reversed; much of the recent recovery has been concentrated in informal employment. With the global outlook weakening, labour market prospects for 2023 and 2024 have dimmed across most economies.

Sluggish growth, persistent inflation, and rising debt burdens threaten to further erode progress toward the Sustainable Development Goals, compounding the already damaging legacy of the COVID-19 pandemic. An extended period of weak economic activity and slow income growth could…

…undercut poverty reduction efforts by limiting governments’ ability to invest in healthcare, education, physical and digital infrastructure, and the shift to cleaner energy.
The global food and energy crisis triggered by the war in Ukraine is severely impacting many developing nations. On top of this, extreme droughts and floods have devastated harvests, particularly across parts of Africa and South Asia, driving millions deeper into poverty. With food and fertilizer prices soaring and supply chains disrupted, the number of people experiencing acute food insecurity more than doubled between 2019 and 2022.

Some relief came through the Black Sea Grain Initiative, mediated by the United Nations and Türkiye, which allowed Ukrainian food exports to resume. Between August and mid-December 2022, more than 15 million metric tons of grain and other agricultural products were shipped worldwide. Additionally, under a memorandum of understanding signed in July 2022, the Russian Federation and the UN Secretariat agreed to ensure unhindered access to international markets for Russian food and fertilizers, including inputs needed for fertilizer production.

Even so, uncertainty about how long and how intensely the conflict will last—along with the possibility of new export restrictions from major food-exporting nations—suggests that food supply pressures will probably continue through 2023.