The World Bank announced on Tuesday that it has raised its global growth outlook for 2024 slightly, primarily due to stronger-than-expected performance from the US economy. However, it cautioned that overall global economic output is expected to remain significantly below pre-pandemic levels until 2026.
In its latest Global Economic Prospects report, the World Bank stated that the global economy is expected to avoid a third consecutive year of declining real GDP growth following a significant rebound in 2021. The growth for 2024 is projected to stabilize at 2.6%, unchanged from 2023, reflecting an improvement of 0.2 percentage points from the January forecast, largely driven by robust US demand.
“We’re seeing a potential for a soft landing,” commented Ayhan Kose, the World Bank’s Deputy Chief Economist, in an interview with Reuters. He highlighted that increased interest rates have successfully reduced inflation without causing major job losses or significant disruptions in the US and other major economies. However, Kose also noted that growth might be constrained, stating, “The downside is that we may find ourselves in a prolonged period of slow growth.”
The World Bank anticipates global growth rates of 2.7% for both 2025 and 2026, which is considerably below the 3.1% average seen in the decade prior to the COVID-19 pandemic. It also predicts that interest rates will remain high over the next three years, which could hamper growth and increase debt pressures, especially for emerging markets with significant dollar-denominated debt.
According to the report, countries representing 80% of the world’s population and economic output will experience weaker growth through 2026 compared to pre-pandemic levels. The World Bank also expressed concerns for the world’s poorest economies, which face significant challenges such as high debt service costs, limited trade opportunities, and adverse climate events, necessitating ongoing international support.
The report outlines an alternative scenario where persistent inflation in advanced economies could keep interest rates approximately 40 basis points above the baseline forecast, reducing global growth to 2.4% by 2025.
US Economy Remains Resilient
The report noted that strong demand and higher inflation in the US have delayed expected Federal Reserve rate cuts, and the US economy continues to outperform expectations, avoiding a downturn for the second consecutive year. The World Bank has revised its 2024 growth forecast for the US to 2.5%, up from 1.6% in January, with the US accounting for about 80% of the global growth revision.
China and Other Major Economies
The World Bank also increased China’s 2024 growth forecast to 4.8% from 4.5% due to higher exports, despite weak domestic demand. However, it predicts a slowdown to 4.1% in 2025 due to declining investment, consumer confidence, and ongoing issues in the property sector.
India’s growth forecast for 2024 was also revised upwards to 6.6% from 6.4% in January, driven by strong domestic demand. Conversely, Japan’s forecast was reduced to 0.7% from 0.9% due to weak consumer spending and sluggish exports, while the Eurozone’s growth forecast remains at 0.7%, reflecting continued challenges from high energy costs and reduced industrial output.
Risks from Global Conflicts and Trade Restrictions
The World Bank highlighted significant downside risks to the global outlook, including potential spillover effects from ongoing conflicts in Gaza and Ukraine. An escalation in the Middle East could disrupt shipping and raise oil prices and inflation, while uncertainty around Russia’s invasion of Ukraine could impact global markets and neighboring economies.
Increased trade restrictions driven by geopolitical tensions could also hinder the recovery of global trade, which saw minimal growth last year. The World Bank projects a modest trade volume growth rebound to 2.5% in 2024, up from 2.3% in the January forecast. However, rising protectionism could lead to inefficiencies in global supply chains and reduce investment in emerging markets.
The World Bank also warned that a more significant economic downturn in China could impede growth, particularly for commodity exporters and trade-reliant economies.
On a positive note, the World Bank suggested that if the US continues to outperform expectations with sustained productivity gains and increased labor supply, it could boost global growth and lead to lower inflation, potentially enabling central banks to cut interest rates sooner than anticipated. This, in turn, could stimulate credit growth and further support global economic recovery.
