Economy
The World Bank Group says Global growth is projected to stabilize at 2.6% in 2024, maintaining steady levels despite geopolitical tensions and high interest rates. Growth is expected to slightly increase to 2.7% in 2025-26, driven by modest gains in trade and investment.
Inflation is forecasted to moderate more slowly than previously anticipated, averaging 3.5% this year, leading central banks in both advanced economies and EMDEs to maintain cautious monetary policies.
Benchmark policy interest rates are expected to remain about twice the 2000-19 average over the next few years.
Despite improved near-term growth prospects, the outlook remains subdued by historical standards. Global growth is expected to be nearly half a percentage point below its 2010-19 average pace. In 2024-25, nearly 60% of economies, representing over 80% of the global population and output, will underperform their 2010s average growth.
EMDE growth is forecasted to moderate from 4.2% in 2023 to 4% in 2024 and 2025, with many vulnerable economies facing continued challenges.
Global risks remain predominantly on the downside, with potential geopolitical tensions causing commodity price volatility and further trade fragmentation. Persistent inflation could delay monetary easing, while elevated interest rates might dampen global activity.
Major economies could face slower growth due to domestic challenges, and climate-related natural disasters could further hinder activity.
However, faster-than-expected moderation of global inflation or stronger-than-expected growth in the United States could present upside surprises.
Policy Recommendations
Decisive global and national policy efforts are essential to address these challenges.
Globally, priorities include safeguarding trade, supporting green and digital transitions, delivering debt relief, and improving food security.
Nationally, EMDEs need to focus on price stability, manage high debt and debt-servicing costs, and sustainably boost investment while ensuring fiscal sustainability.
Structural policies are necessary to raise productivity, improve public investment efficiency, build human capital, and close gender gaps in the labor market.
Regional Prospects
Growth is projected to soften in most EMDE regions in 2024, particularly in East Asia and the Pacific due to moderating growth in China. Europe and Central Asia, Latin America and the Caribbean, and South Asia are also expected to see deceleration amid slowdowns in their largest economies.
In contrast, growth in the Middle East and North Africa and Sub-Saharan Africa is expected to pick up, though less robustly than previously forecast.
Public Investment
Public investment is a crucial policy tool in EMDEs to stimulate growth and attract private investment. Despite its slowdown over the past decade, scaling up public investment by 1% of GDP can increase output by up to 1.6% over the medium term. To maximize its impact, EMDEs should implement policy reforms to improve public investment efficiency, strengthen governance, and create fiscal space through revenue and expenditure measures. The global community can support these efforts through financial support and technical assistance.
Fiscal Challenges in Small States
The COVID-19 pandemic and subsequent global shocks have worsened the fiscal and debt positions of small states, intensifying their fiscal challenges. These states require focused efforts to rebuild resilience and manage their fiscal responsibilities effectively.
F.A
June 14, 2024
Tags: Global economic growth World Bank Group
