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  April 6th, 2024 | Written by

Global Economy Set for Weakest Half-Decade Performance in 30 Years

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The latest World Bank Global Economic Prospects report paints a sobering picture of the global economy, revealing the slowest half-decade of GDP growth in three decades. Despite the receding risk of a global recession, exacerbated by a robust U.S. economy, mounting geopolitical tensions and sluggish global trade pose fresh challenges. Developing economies, in particular, face a daunting outlook with slowing growth, tight financial conditions, and subdued global trade growth.

Global growth is projected to decelerate for the third consecutive year, falling to 2.4% in 2024, significantly below the average of the previous decade. Developing economies are expected to grow by just 3.9%, with low-income countries experiencing even weaker growth. Alarmingly, by the end of 2024, a significant portion of developing and low-income countries’ populations will remain poorer than pre-pandemic levels.

Indermit Gill, Chief Economist and Senior Vice President of the World Bank Group, warns of a wasted decade if significant interventions are not made promptly. Urgent action is needed to accelerate investment and strengthen fiscal policy frameworks to break the cycle of weak growth and mounting debt.

To achieve key global development goals, particularly addressing climate change, developing countries require a substantial increase in investment, estimated at $2.4 trillion annually. However, without comprehensive policy reforms, the prospects for such an increase remain bleak.

The report underscores the transformative potential of investment booms in developing economies, which can accelerate convergence with advanced economies, reduce poverty, and drive productivity growth. However, realizing these benefits necessitates concerted efforts to improve fiscal and monetary frameworks, enhance the investment climate, and strengthen institutions.

Ayhan Kose, Deputy Chief Economist and Director of the Prospects Group at the World Bank, emphasizes the need for comprehensive policy packages to spark investment booms. Developing economies, including commodity exporters, must implement measures to avoid boom-and-bust cycles exacerbated by volatile fiscal policies. Flexible exchange-rate regimes, disciplined government spending, and the establishment of sovereign-wealth funds are among the suggested strategies to mitigate economic instability.

In summary, the report calls for decisive action to avert a prolonged period of sluggish growth and economic hardship. By prioritizing investment, strengthening fiscal policies, and implementing structural reforms, economies can navigate the challenges ahead and lay the foundation for sustainable and inclusive growth.