The World Bank said on Tuesday that the global economy remains in a “precarious state” and warned of sluggish growth this year and next as rising interest rates slow consumer spending and business investment and threaten the stability of the financial system.

The bank’s tepid forecasts in its latest Global Economic Prospects report underscore the predicament facing world policymakers as they try to correct stubborn inflation by raising interest rates while grappling with the fallout from the pandemic and continued disruption to supply chains stemming from the war in Ukraine.

The World Bank forecast global growth to slow to 2.1 percent this year from 3.1 percent in 2022. That’s slightly stronger than its estimate of 1.7 percent in January, but in 2024 output is now expected to rise to 2.4 percent, which is weaker than the bank’s performance. the previous forecast was 2.7 percent.

“The rays of sunshine in the global economy that we saw at the beginning of the year are fading and gray days are likely ahead,” said Ayhan Kose, deputy chief economist of the World Bank Group.

Mr Kose said the world economy was experiencing a “sharp, synchronized global slowdown” and that 65 per cent of countries would experience slower growth this year than last year. A decade of fiscal mismanagement in low-income countries that have relied on borrowed money exacerbates the problem. According to the World Bank, 14 out of 28 low-income countries are in debt distress or at high risk of debt distress.

Optimism about an economic recovery this year has dampened recent stress in the banking sectors in the United States and Europe, which resulted in the biggest bank failures since the financial crisis of 2008. Concerns about the health of the banking industry have prompted many lenders to pull back from lending to businesses and individuals, a phenomenon that the World Bank says is likely to slow growth further.

The bank also warned that rising borrowing costs in rich countries – including the United States, where overnight interest rates topped 5 percent for the first time in 15 years – were another headwind for the world’s poorest economies.

The most vulnerable economies, the report warned, face a greater risk of financial crises as a result of rising rates. Higher interest rates make it more expensive for developing countries to repay loans and, in the event of a devaluation of their currency, to import food.

In addition to the risks posed by rising interest rates, the pandemic and the conflict in Ukraine have combined to reverse decades of progress in reducing global poverty. The World Bank estimated on Tuesday that in 2024, incomes in the poorest countries would be 6 percent lower than in 2019.

“Emerging markets and developing economies today are struggling just to cope – deprived of the means to create jobs and provide basic services to their most vulnerable citizens,” the report said.

The World Bank sees a widespread slowdown even in advanced economies. In the United States, it predicts growth of 1.1 percent this year and 0.8 percent in 2024.

China is a notable exception to this trend, and the reopening of its economy after years of severe Covid-19 restrictions is supporting global growth. The bank expects China’s economy to grow by 5.6 percent this year and 4.6 percent next year.

Inflation is expected to moderate further this year, but the World Bank expects prices to remain above the central bank’s targets in many countries throughout 2024.