World Bank: Stabilization of Global Growth for the First Time in Three Years, but Still Slower than Pre-Pandemic Levels

According to the latest World Bank report Global Economic Prospects, the global economy is expected to stabilize for the first time in three years in 2024, but at a level lower than previously recorded historical levels.

Global growth is expected to stabilize at 2.6 percent in 2024, before approaching an average of 2.7 percent in the period 2025 – 2026. This is significantly lower than the average of 3.1 percent in the years before the outbreak of COVID-19. Projections indicate that in the period 2024 – 2026, countries that together account for more than 80 percent of the world’s population and global GDP will continue to experience slower growth than in the years before the COVID-19 crisis.

According to projections, in the period 2024 – 2025, developing countries are generally expected to grow at an average rate of four percent, which is slightly lower than in 2023. Growth in low-income countries is expected to accelerate from 3.8 percent in 2023 to five percent in 2024. However, the 2024 forecasts reflect a decline recorded in three-quarters of low-income countries compared to January. In advanced economies, growth will stabilize at 1.5 percent in 2024, before accelerating to 1.7 percent in 2025.

– Four years after the disruptions caused by the pandemic, conflicts, inflation, and tightening monetary policies, it seems that global economic growth is stabilizing, said Indermit Gill, Chief Economist and Senior Vice President of the World Bank Group.

– However, growth is lower than before 2020. Even more concerning are the prospects for the world’s poorest countries. These countries face exhausting levels of debt servicing, increasingly weak opportunities for international trade, and harmful events caused by climate change. Developing countries will need to find ways to stimulate private investment, reduce public debt, and improve education, healthcare, and basic infrastructure. The poorest among them, especially the 75 countries eligible for concessional assistance from the International Development Association, will not be able to do this without international support, Gill stated.

It is expected that this year, a quarter of developing countries will remain poorer than they were just before the pandemic in 2019. This share is twice as high for countries in fragile situations affected by conflicts. Additionally, in the period 2020 – 2024, the income gap between developing and advanced countries will increase in nearly half of developing countries, the highest share since the 1990s. Per capita income in these countries, an important indicator of living standards, is expected to grow by an average of three percent by 2026, significantly less than the average of 3.8 percent in the years before the COVID-19 pandemic.

Postponing Interest Rate Cuts

Global inflation is expected to ease to 3.5 percent in 2024 and 2.9 percent in 2025, but slower than the dynamics projected just six months ago. As a result, many central banks are expected to remain cautious in lowering interest rates. Global interest rates are likely to remain high compared to levels in recent decades and will average around four percent in the period 2025 – 2026, approximately double the levels from 2000 – 2019.

– Although food and energy prices have slightly decreased worldwide, core inflation remains relatively high and could stay that way, said Ayhan Kose, Deputy Chief Economist and Director of the Global Economic Prospects Group at the World Bank. – Therefore, central banks in the largest advanced economies may delay interest rate cuts. Higher interest rates for a longer period would lead to tightening global financial conditions and much weaker growth in developing countries, Kose added.

The latest Global Economic Prospects report also includes two analytical chapters addressing current topics. The first describes how public investments can be leveraged to accelerate private investments and stimulate economic growth. Results show that the growth of public investments in developing countries has halved since the global financial crisis and has decreased to an average of five percent annually over the last decade. However, public investments can be a powerful tool for public policy. In developing countries with sufficient fiscal space and effective public spending, increasing public investments by one percent of GDP can increase output in the medium term by up to 1.6 percent.

The second analytical chapter explores why small countries, or countries with approximately 1.5 million inhabitants or less, continuously struggle with fiscal difficulties. Two-fifths of the 35 small developing countries are at risk of being unable to meet their financial obligations or are already in that situation. This is about double the share compared to other developing countries. Comprehensive reforms are needed to address the fiscal challenges of small countries. Revenues could be raised from a more stable and secure tax base. The efficiency of spending could also be increased, especially in healthcare, education, and infrastructure. Fiscal frameworks could be established to manage more frequent natural disasters and other shocks. Targeted and coordinated global public policies could set these countries on a more sustainable fiscal path.