Global economic growth is expected to slow for a third straight year in 2024, but defies recession fears, according to new World Bank forecasts.
The global growth rate this year is expected to decline to 2.4% from 2.6% last year, according to the World Bank’s latest report on global economic prospects. In 2025, it is expected to rise to 2.7%.
Expectations of a slowdown in 2024, according to the World Bank, are due to weak global trade and the effects of higher interest rates raised by central banks to cool inflation. Many countries are expected to cut interest rates this year.
However, a withdrawal in 2024 will not be enough to cause a global recession, according to the World Bank.
According to the World Bank report, “It is rare for countries to reduce inflation rates without causing a decline. But this time, a soft landing seems increasingly possible.”
The risk of a global recession has receded largely due to the strength of the US economy, which has shown amazing resilience in 2023.
But downside risks to growth remain, according to the World Bank, including the escalation of the recent conflict in the Middle East and the possibility of higher commodity prices, which could lead to higher inflation.
Other risks are the possibility of financial stress due to high debt and high borrowing costs; Trade segmentation; climate-related disasters; Weaker growth than expected in China.
China’s growth is expected to slow to 4.5% this year from an estimated more than 5% last year, marking the slowest pace in 30 years outside of the pandemic. Cool consumer sentiment and ongoing contraction in the real estate sector are expected to curb this growth.
China’s economy is also under pressure due to an aging and shrinking population. The World Bank estimates that if China’s GDP was 1% lower than expected, it would reduce overall global growth by 0.2% and could lead to negative spillover effects.
Developing economies are expected to grow by just 3.9%, more than one percentage point below the average of the previous decade. Overall global growth also remains below the 2000s average.
This year, US growth is expected to slow to 1.6% as high real interest rates constrain growth.
Consumer spending is expected to slow as savings are withdrawn, borrowing costs continue to rise and the labor market declines. The World Bank expects government spending to be curbed as interest rates rise and growth weakens, affecting the federal budget.
While overall inflation has fallen globally, core inflation, which excludes volatile food and energy prices, has been more stable, especially in advanced economies where labor markets remain strong.
As a result, the World Bank believes that interest rates in advanced economies will fall only gradually, meaning market interest rates will be higher in the long term than they were before the pandemic.
Beyond the next two years, the outlook looks bleak. Most economies – both developed and developing – are expected to grow more slowly than in the decade before Covid-19, which was characterized by a slowdown in global trade and the tightest financial conditions in decades.
The last five years of this decade are poised to show one of the weakest global growth performances on record in the half-decade since the 1990s, with people in one in four developing economies poorer than they were before the pandemic.
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