Global economic growth will slow for a third consecutive month in 2024 but defy fears of a recession, according to a new forecast from the World Bank.
According to the World Bank's latest Global Economic Prospects report, the global growth rate is expected to decline to 2.4% this year from an estimated 2.6% last year. An increase to 2.7% is expected in 2025.
The forecast for a slowdown in 2024 is due to weak global trade and the impact of elevated interest rates that central banks have raised to cool inflation, according to the World Bank. Many countries are expected to cut interest rates this year.
Jerome Powell, Chairman of the US Federal Reserve. The Fed is expected to cut interest rates in 2024 after conducting its most aggressive campaign to cool inflation since the 1980s. Portal/Evelyn Hockstein (Portal / Portal)
But the decline in 2024 will not be enough to trigger a global recession, according to the World Bank.
“It is rare for countries to reduce inflation rates without triggering a downturn. But this time, a soft landing appears increasingly possible,” the World Bank report said.
The risk of a global recession has receded largely due to the strength of the U.S. economy, which showed surprising resilience in 2023.
However, downside risks to growth remain, according to the World Bank, including an escalation in the recent conflict in the Middle East and the possibility of a rise in commodity prices that could push up inflation.
Other dangers include potential financial burdens due to high debt and high borrowing costs; trade fragmentation; climate-related disasters; and weaker-than-expected growth in China.
China's growth is expected to slow to 4.5% this year, compared with an estimated over 5% last year – marking the slowest pace in 30 years outside of the pandemic. Weak consumer sentiment and a prolonged downturn in the real estate sector are likely to dampen this growth.
Tiananmen Square in Beijing, the capital of China, on January 1st this year. (Photo by Ren Chao/Xinhua via Getty Images) (Xinhua News Agency via Getty Images)
China's economy is also burdened by an aging and shrinking population. The World Bank estimates that a 1% lower-than-forecast GDP in China could lead to a 0.2% decline in overall global growth and trigger negative spillover effects.
Growth of just 3.9% is forecast for developing countries, which is more than a percentage point below the average for the last decade. Overall global growth is also still below the average for the 2010s.
The story goes on
This year, US growth is expected to slow to 1.6% as high real interest rates slow growth.
Consumer spending is expected to slow as savings erode, borrowing costs remain higher and the labor market eases. The World Bank expects government spending to be curbed as increased interest rates and slowing growth weigh on the federal budget.
While headline inflation has fallen globally, core inflation, which excludes volatile food and energy prices, has remained more persistent, particularly in advanced economies where labor markets remain strong.
As a result, the World Bank expects interest rates in advanced economies to fall only gradually, reflected in higher longer-term market interest rates than before the pandemic.
The outlook for the next two years is bleak. Most economies – both advanced and developing – are expected to grow more slowly than in the decade before COVID-19, marked by sluggish global trade and the tightest financial conditions in decades.
The last five years of this decade are on track to record one of the weakest global growth performances of any half-decade since the 1990s, with people in one in four developing countries poorer than before the pandemic.
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