World economy steers towards "gentle descent"
In January, the World Bank depicted a dismal view of the global economy. However, a newer forecast paints a more positive outlook for the future. It predicts growth of 2.6 percent. Although, many developing countries continue to face challenging economic conditions.
The World Bank notes that the global economy is starting to stabilize for the first time in three years amid geopolitical tensions and high-interest rates. Similar to the past year, the worldwide economy is anticipated to expand by 2.6 percent this year, as reported in Washington. This projection for 2024 is slightly higher than in January (up by 0.2 percent).
The World Bank's Chief Economist, Indermit Gill, comments that it's a positive sign that the global economy is recovering faster than expected and inflation is dropping. However, it's less encouraging that the average growth throughout the forecast period is about half a percentage point lower than before the coronavirus pandemic. A concerning note is that the poorest countries globally are still grappling with economic hardship.
Forecasting economic growth for years 2025 and 2026, the World Bank predicts it to be 2.7 percent. The global economy seems to be transitioning into what is known as a "soft landing," which refers to less inflation, no recession, and low unemployment. Yet, it's evident that more than four years post-pandemic, the world - and especially the developing countries - have yet to discover a dependable path to prosperity, according to the World Bank.
Chief Economist Gill remarks, "The picture isn't positive for the smallest and poorest economies in terms of stability or growth." These nations are experiencing substantial debt levels and climate disasters. The World Bank alerts that by the year's end, approximately one-fourth of developing countries will be poorer than they were prior to the pandemic. Until 2026, the countries housing over 80 percent of the world's population are projected to expand, on average, at a slower pace than the ten years preceding the coronavirus pandemic. The World Bank anticipates that many developing nations will likely not surpass the industrialized nations in the near future.
The World Bank acknowledges the American economy as a "bright spot." In the world's most prominent economy, the US has displayed remarkable resilience. The World Bank concludes, "Growth has remained strong in the face of the toughest monetary tightening in the last forty years." The dynamism in the US economy is one reason why the global economy can potentially expand in the next two years.
For Europe, the World Bank presents a mixed appraisal. After observing a significant slowdown in growth within the euro area in 2023, the World Bank projects growth of 0.7 percent for 2024 (January: 0.7 percent) and 1.4 percent for the year following (January: 1.6 percent). The economy appears to be bouncing back from the trough, although there are considerable variances between varying sectors and member states. The service industry signals an initial improvement. Nevertheless, this will be countered by a weaker-than-anticipated industrial sector - particularly in Germany's processing industry.
In the Middle East and Ukraine, the World Bank voices worries. The Middle East is predicted to grow at a 2.2 percent rate this year, down from 2.5 percent in January. In Ukraine, the World Bank expects an uptick in growth to 1.5 percent, reduced from 2.5 percent in January. The World Bank cautions that Ukraine's ongoing conflict could further hamper the country's economic recovery.
Due to Russia's aggressive invasion of Ukraine, extensive sanctions were imposed by the West. Surprisingly, Russia's economy showed resilience. The World Bank attributes this to the heavily-militarized economy, subsidies, and private demand, which dipped more significantly than anticipated. For 2024, the World Bank forecasts economic growth of 2.9%, whereas, for the impending year, 1.4% is predicted (January: 0.9%). Military production continues to reap positive effects, but private demand may diminish. The World Bank emphasizes Russia's growing trade ties with China.
The World Bank expresses concern over the Middle East and Ukraine. Interruptions related to oil delivery from the Middle East could cause significant hikes in oil prices, potentially halting progress in the fight against high inflation. The Russian invasion of Ukraine also raises concerns regarding raw material markets, specifically oil and grains. The projection forecasts global inflation to be around 3.5% this year and 2.9% the next year. This decline is slower than initially expected.
The World Bank surmises that central banks will exercise caution when easing monetary policies due to persistent inflationary pressure. Experts and professionals approximate that average interest rates for the coming years will approximately double the pre-2000-to-2019 average. Recently, the European Central Bank (ECB) reduced interest rates by 0.25 percentage points. On Wednesday, the US Federal Reserve (Fed) will determine its impending monetary policy. Observers anticipate that the Fed will keep interest rates at a high level.
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The World Bank, in its latest report, acknowledges that despite the global economy showing signs of recovery with a predicted 2.6% growth this year, many developing countries continue to face challenging economic conditions. The World Bank also highlights that the poorest countries worldwide are still grappling with economic hardship, despite the global economy transitioning towards a "soft landing."
