World Bank anticipates global economy to stabilize for first time in three years

July 09, 2024 (MLN): Global growth is projected to stabilize at 2.6% this year, holding steady for the first time in three years despite flaring geopolitical tensions and high interest rates, the World Bank states in its latest Global Economic Prospects report.

Growth is then expected to edge up to 2.7% in 2025-26 amid modest growth in trade and investment.

Alongside, the World Bank projects global inflation to moderate—but at a slower clip than previously assumed, averaging 3.5 percent this year.

Given continued inflationary pressures, central banks in both advanced economies and emerging market and developing economies (EMDEs) will likely remain cautious in easing monetary policy.

As such, average benchmark policy interest rates over the next few years are expected to remain about double the 2000-19 average.

"Despite an improvement in near-term growth prospects, the outlook remains subdued by historical standards in advanced economies and EMDEs alike," the report noted.

Global growth over the forecast horizon is expected to be nearly half a percentage point below its 2010-19 average pace.

In 2024-25, growth is set to underperform its 2010s average in nearly 60 percent of economies, representing more than 80 percent of global population and world output.

The agency further forecasts EMDE growth to moderate from 4.2% in 2023 to 4% in both 2024 and 2025.

Prospects remain especially lackluster in many vulnerable economies—over half of the economies facing fragile- and conflict-affected situations will still be poorer by the end of this year than on the eve of the pandemic.

Global risks remain tilted to the downside despite the possibility of some upside surprises, it added.

Moreover, World Bank further alarmed that escalating geopolitical tensions could lead to volatile commodity prices, while further trade fragmentation risks additional disruptions to trade networks.

Already, trade policy uncertainty has reached exceptionally high levels compared to other years that have featured major elections around the world since 2000. The persistence of inflation could lead to delays in monetary easing.

A higher-for-longer path for interest rates would dampen global activity.

Some major economies could grow more slowly than currently anticipated due to a range of domestic challenges with additional natural disasters related to climate change could also hinder activity.

On the upside, global inflation could moderate more quickly than assumed in the baseline, enabling faster monetary policy easing.

In addition, growth in the United States could be stronger than expected.

Against this backdrop, decisive global and national policy efforts are needed to meet pressing challenges.

At the global level, priorities include safeguarding trade, supporting green and digital transitions, delivering debt relief, and improving food security.

At the national level, persistent inflation risks underscore the need for EMDE monetary policies to remain focused on price stability.

High debt and elevated debt-servicing costs will require policy makers to seek ways to sustainably boost investment while ensuring fiscal sustainability.

"To meet development goals and bolster long-term growth, structural policies are needed to raise productivity growth, improve the efficiency of public investment, build human capital, and close gender gaps in the labor market," it further said.

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