World Bank’s Latest Global Economic Prospects Report: World’s Economy to Stabilize After 3 Years

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The World Bank’s latest Global Economic Prospects report forecasts that the global economy will stabilize in 2024 for the first time in three years, though growth remains weak compared to recent historical standards. Global growth is expected to hold steady at 2.6% in 2024, increasing slightly to an average of 2.7% in 2025-26. This is significantly below the pre-COVID-19 average of 3.1%. The report suggests that from 2024-26, countries accounting for over 80% of the world’s population and GDP will grow more slowly than they did in the decade before the pandemic.

Developing economies are projected to grow at an average of 4% over 2024-25, a slight deceleration from 2023. Low-income economies, however, are expected to see growth accelerate from 3.8% in 2023 to 5% in 2024, despite downgraded growth forecasts for three-quarters of these economies since January. Advanced economies are set to maintain a steady growth rate of 1.5% in 2024, rising to 1.7% in 2025.

Indermit Gill, the World Bank Group’s Chief Economist, and Senior Vice President noted that four years after the disruptions caused by the pandemic, conflicts, inflation, and monetary tightening, global economic growth appears to be steadying, albeit at lower levels than before 2020. Gill emphasized the challenges facing the world’s poorest economies, which are grappling with high debt service, limited trade opportunities, and costly climate events. He stressed the need for developing economies to encourage private investment, reduce public debt, and improve education, health, and infrastructure, with international support being crucial for the poorest countries.

In 2024, one in four developing economies is expected to remain poorer than in 2019, with this proportion doubling for countries in fragile and conflict-affected situations. The income gap between developing and advanced economies is projected to widen in nearly half of developing countries over 2020-24, the highest share since the 1990s. Per capita income in developing economies is expected to grow by 3.0% on average through 2026, significantly below the pre-pandemic average of 3.8%.

Global inflation is predicted to moderate to 3.5% in 2024 and 2.9% in 2025, but this decline is slower than previously projected. Consequently, many central banks are likely to remain cautious about lowering policy interest rates. Global interest rates are expected to stay high, averaging about 4% over 2025-26, roughly double the average from 2000-19.

Ayhan Kose, the World Bank’s Deputy Chief Economist and Director of the Prospects Group pointed out that despite moderation in food and energy prices globally, core inflation remains relatively high. This could lead central banks in major advanced economies to delay interest-rate cuts, resulting in tighter global financial conditions and weaker growth in developing economies.

The report highlights that public investment growth in developing economies has halved since the global financial crisis, averaging only 5% annually over the past decade. Public investment is identified as a potent policy tool with the potential to significantly boost output. For developing economies with sufficient fiscal space and efficient government spending, a 1% GDP increase in public investment could raise output by up to 1.6% over the medium term.

The report also underscores the fiscal challenges faced by small states, with two-fifths of the 35 developing economies in this category at high risk of debt distress or already experiencing it. Comprehensive reforms are recommended to address these challenges, including drawing revenues from a stable tax base, improving spending efficiency in critical sectors, and adopting fiscal frameworks to manage natural disasters and other shocks. Coordinated global policies are deemed essential to help these countries achieve a sustainable fiscal path.

 

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