The World Bank Sees a Rally in Silver. Almost.
The world bank slashed its forecast of global growth in 2023 from 3% to 1.7%. It implies a recession - something fundamentally positive for silver prices.
A sharp and long-lasting slowdown is coming! The World Bank published the newest edition of its Global Economic Prospects this week. The publication is rather gloomy. The World Bank decreased its global growth forecast in 2023 to just 1.7% from the 3% expected only six months ago. It will also be a slowdown from the 2.9% expected in 2020 and the third weakest pace of growth in nearly three decades, only overshadowed by the Great Recession and the Great Lockdown. The deterioration will be broad-based, as it will occur in virtually all regions. The decline in growth reflects synchronous monetary policy tightening, worsening financial conditions, and continued disruptions from Russia’s invasion of Ukraine. The consequences could be grave, and they include financial crisis and recession:
the combination of slow growth, tightening financial conditions, and heavy indebtedness is likely to weaken investment and trigger corporate defaults. Further negative shocks—such as higher inflation, even tighter policy, financial stress, deeper weakness in major economies, or rising geopolitical tensions—could push the global economy into recession.
Stagflation Is Possible
When it comes to the US GDP growth in 2023, the World Bank forecasts it at just 0.5% as opposed to the 2.4% in June forecast. It will be a slowdown from the 1.9% expected in 2022 and the weakest non-recession performance since 1970… if this is indeed a non-recession performance. After all, the risks to the growth outlook are tilted to the downside, and, as the World Bank admits:
given already-weak global growth, a combination of sharper monetary policy tightening and financial stress could result in a more pronounced slowdown or even a global recession this year
To make matters worse, although inflation is likely to soften gradually in 2023, core inflation could become more persistent. It would imply stagflation that could prompt the central banks to hike interest rates to higher levels than currently expected, worsening the global slowdown.
Implications for Silver
What does it all mean for the silver (and gold) outlook for 2023? Well, the release of the report didn’t affect silver prices, as the chart below shows (courtesy of silverpiceforecast.com). However, the publication is fundamentally positive for the precious metals.
Why? Well, the scale of the slowdown projected by the World Bank suggests a global recession. After all, the last five recessions happened when world GDP growth decreased below the 2.5% threshold. And although the World Bank sees a positive pace of economic development for the U.S., there are downside risks to this outlook, and the number could be revised down later in the future. In such a recessionary environment, silver and gold could shine. Recessions spur safe-haven demand for the precious metals and lead to a dovish monetary policy which is beneficial for silver and gold.
Arkadiusz Sieron, PhD