The global economy is on track for its weakest half-decade performance in 30 years, the World Bank warned on Tuesday, as it is set to slow for a third year in a row in 2024, hobbled by high interest rates, persistent inflation, slumping trade and a diminished China.
That is the picture sketched by the World Bank, which forecast that the world economy will expand just 2.4% this year. That would be down from 2.6% growth in 2023, 3% in 2022 and a galloping 6.2% in 2021, which reflected the robust recovery from the pandemic recession of 2020.
That would make growth weaker in the 2020-2024 period than during the years surrounding the 2008-2009 global financial crisis, the late 1990s Asian financial crisis and downturns in the early 2000s, World Bank Deputy Chief Economist Ayhan Köse told reporters.
Excluding the pandemic contraction of 2020, growth this year is set to be the weakest since the global financial crisis of 2009, the development lender said.
It forecasts 2025 global growth slightly higher at 2.7%, but this was marked down from a June forecast of 3% due to anticipated slowdowns among advanced economies.
Heightened global tensions, arising particularly from Israel’s conflict with Palestine and the war in Ukraine, pose the risk of even weaker growth. And World Bank officials express worry that deeply indebted poor countries cannot afford to make necessary investments to fight climate change and poverty.
"Without a major course correction, the 2020s will go down as a decade of wasted opportunity," Indermit Gill, the World Bank's chief economist, said in a statement.
"Near-term growth will remain weak, leaving many developing countries – especially the poorest – stuck in a trap: with paralyzing levels of debt and tenuous access to food for nearly one out of every three people," Gill noted.
In recent years, the international economy has proved surprisingly resilient in the face of shock after shock: the pandemic, Russia's invasion of Ukraine, resurgent global inflation and the burdensome interest rates that were imposed by central banks to try to bring price increases back under control.
The World Bank now says the global economy grew half a percentage point faster in 2023 than it had predicted back in June and concludes that "the risk of a global recession has receded," largely because the U.S. economy outperformed due to strong consumer spending.
The U.S. likely registered 2.5% growth last year – 1.4 percentage points faster than the World Bank had expected in midyear. The World Bank, an 189-country anti-poverty agency, expects U.S. growth to decelerate to 1.6% this year as higher interest rates weaken borrowing and spending.
The Federal Reserve (Fed) has raised U.S. interest rates 11 times since March 2022. Its strenuous efforts have helped bring U.S. inflation down from the four-decade high it reached in mid-2022 to nearly the Fed's 2% target level.
Higher rates are also taming global inflation, which the World Bank foresees sinking from 5.3% last year to 3.7% in 2024 and 3.4% in 2025, though still above pre-pandemic averages.
The World Bank expects the 20 countries that share the euro currency to eke out 0.7% growth this year, a modest improvement on 0.4% expansion last year. Tighter credit conditions prompted a 0.6 percentage point cut to the region's 2024 outlook from the bank's June forecast.
China's economy, the world’s second-largest after the United States, is expected to grow 4.5% this year and 4.3% in 2025, down sharply from 5.2% last year.
That marks its slowest expansion in over three decades outside of the pandemic-affected years of 2020 and 2022.
For decades a leading engine of global growth, China's economy has sputtered in recent years: Its overbuilt property market has imploded. Its consumers are downcast, with youth unemployment rampant. And its population is aging, sapping its capacity for growth.
Slumping growth in China is likely to hurt developing countries that supply the Chinese market with commodities, like coal-producing South Africa and copper-exporting Chile.
"More generally though, weaker growth in China reflects the economy returning to a path of weakening potential growth due to an aging and shrinking population, rising indebtedness that constrains investment and in a sense, narrowing opportunities for productivity to catch up," Köse told reporters.
Japan’s economy is forecast to grow just 0.9%, half the pace of its 2023 expansion.
Emerging markets and developing economies as a group are forecast to grow 3.9% this year, down from 4% in 2023 and a full percentage point below their average in the 2010s.
That pace is not enough to lift growing populations out of poverty and the World Bank said that by the end of 2024, people in about one out of every four developing countries and 40% of low-income countries will be poorer than they were in 2019, before the pandemic.
The World Bank said one way to boost growth, especially in emerging markets and developing countries would be to accelerate the $2.4 trillion in annual investment needed to transition to clean energy and adapt to climate change.
The bank studied rapid and sustained investment accelerations of at least 4% per year and found that they boost per-capita income growth, manufacturing and services output and improve countries' fiscal positions.
But achieving such accelerations generally requires comprehensive reforms including structural reforms to expand cross-border trade and financial flows and improvements in fiscal and monetary policy frameworks, the bank added.
