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  June 11th, 2024 | Written by

Global Economy Stabilizes but Faces Slow Growth and Persistent Challenges

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The global economy is projected to stabilize in 2024 for the first time in three years, according to the World Bank’s latest Global Economic Prospects report. However, growth rates will remain weak compared to pre-COVID-19 levels. The global growth rate is expected to hold steady at 2.6% in 2024 and slightly increase to an average of 2.7% in 2025-26, significantly lower than the 3.1% average seen in the decade before the pandemic.

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

This forecast suggests that more than 80% of the world’s population and global GDP will experience slower growth than in the pre-pandemic decade. Developing economies are anticipated to grow at an average of 4% over 2024-25, slightly down from 2023, while low-income economies may see an increase to 5% in 2024 from 3.8% in 2023. However, three out of four low-income economies have had their growth forecasts downgraded since January.

Advanced economies are expected to maintain a steady growth rate of 1.5% in 2024, with a slight rise to 1.7% in 2025. The World Bank’s Chief Economist, Indermit Gill, highlighted that global economic growth is stabilizing post-pandemic, but at levels lower than before 2020. He emphasized the significant challenges faced by the world’s poorest economies, including high debt, limited trade opportunities, and costly climate events. These economies will need to boost private investment, reduce public debt, and improve education, health, and infrastructure, with international support being crucial.

In 2023, one in four developing economies is expected to remain poorer than they were in 2019, with the 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 from 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, compared to 3.8% in the decade before COVID-19.

Global inflation is projected to moderate to 3.5% in 2024 and 2.9% in 2025, though the decline is slower than anticipated. Many central banks are likely to remain cautious about lowering interest rates, with global rates expected to stay high, averaging around 4% over 2025-26, double the average from 2000-19. The World Bank’s Deputy Chief Economist, Ayhan Kose, noted that while food and energy prices have moderated, core inflation remains high, potentially leading central banks to delay interest-rate cuts. This could result in tighter global financial conditions and weaker growth in developing economies.

The report also includes analytical chapters on public investment and the fiscal challenges faced by small states. It emphasizes that public investment can significantly boost economic growth in developing economies, particularly those with ample fiscal space and efficient government spending. The second chapter explores the chronic fiscal difficulties of small states, with two-fifths of these economies at high risk of debt distress. Comprehensive reforms and coordinated global policies are needed to address these challenges and put small states on a more sustainable fiscal path.