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The global economy will slow for a third consecutive year in 2024 and appears headed for its weakest half-decade since the early 1990s, the World Bank said on Tuesday in its latest annual forecast.
While higher interest rates appear to be bringing inflation under control without triggering a severe financial crisis or a spike in unemployment that many fear, the global economy's overall performance is lagging, said Indermit Gill, the bank's chief economist.
After recovering significantly from the depths of the pandemic in 2021, the global economy grew 3 percent in 2022, fell to 2.6 percent last year and is expected to post a subdued 2.4 percent this year, the said Bank in its annual Global Economic Outlook report. These rates are below the average of 3.1 percent for the decade of the 2010s.
The ongoing slowdown is all but a guarantee that world leaders will not meet the 2030 development goals agreed to by 193 members of the United Nations, including the United States, in 2015. Governments have committed to transforming the global economy by the end of this decade with 17 ambitious goals, including eradicating extreme poverty, cutting greenhouse gas emissions by almost half, boosting education for the poor and ending hunger.
The measures were not legally binding. But as the result of three years of negotiations and introduced with a speech by Pope Francis at the United Nations, they were considered morally powerful.
“The 2020s have been a time of broken promises so far. “Governments around the world have failed to meet the “unprecedented” targets they promised by 2020,” Gill wrote in a foreword to the report, calling the outlook “pathetic.”
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In a quarter of the world's developing countries, people are poorer today than before the pandemic, the bank said.
“If you look at the bigger picture, it’s not encouraging,” said Ayhan Kose, the bank’s deputy chief economist.
Still, the bank celebrated progress in controlling inflation as supply chain bottlenecks were resolved and higher borrowing costs slowed operations. Global inflation is expected to average 3.7 percent this year, up from 5.3 percent in 2023.
But prices are likely to rise faster than central banks like the Federal Reserve deem advisable well into this year.
“I suggest we don’t serve the champagne yet,” Kose said.
The bank's forecast assumes the U.S. will grow at 1.6 percent this year, about twice as fast as Europe or Japan. China is expected to grow 4.5 percent, compared with an estimated 5.2 percent last year, as post-coronavirus reopening slows.
In the long term, slowing growth is a problem for both advanced economies and middle-income countries. One reason for the weak growth in the latter is the sharp decline in capital expenditure, which is barely half the average of the last two decades.
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By implementing policy changes such as expanded trade and capital flows and government fiscal discipline, developing countries could spur an investment boom, the bank said, citing historical examples. In 192 episodes since 1950, countries such as Chile, Colombia and Turkey increased their annual economic growth rates by almost a third thanks to significantly higher spending on new plants and equipment.
During such periods, developing countries expanded their economies by around 40 percent within six years, the report says.
While banking economists expect a good but not great year, they warned that conditions are more likely to lead to disappointments than positive surprises. The war in Gaza – coupled with ongoing hostilities in Ukraine – could weigh on global growth. An escalation in fighting in the Middle East would likely push oil prices well above their current level of $75 a barrel, dampening growth and boosting inflation.
Attacks on shipping through the Red Sea have prompted cargo ships to take the longer and more costly route around the southern tip of Africa. According to the International Monetary Fund, trade volumes through the Suez Canal, which connects the Red Sea to the Mediterranean, fell 28 percent in the 10 days ended January 2.
Prolonged disruption to this important shipping route could drive up prices in the United States and elsewhere.