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Word Bank sees global growth slowing further to 2.4%

Without a major course correction, the 2020s will go down as a decade of wasted opportunity, warns chief economist

Word Bank sees global growth slowing further to 2.4%
[Source photo: Chetan Jha/Press Insider]

Global growth is projected to slow for the third year in a row—from 2.6% last year to 2.4% in 2024, almost three-quarters of a percentage point below the average of the 2010s, the World Bank’s Global Economic Prospects report said.

Developing economies are projected to grow just 3.9%, more than one percentage point below the average of the previous decade, it said.

By one measure, the global economy is in a better place than it was a year ago: the risk of a global recession has receded, largely because of the strength of the US economy. But mounting geopolitical tensions could create fresh near-term hazards for the world economy, the report said.

Meanwhile, the medium-term outlook has darkened for many developing economies amid slowing growth in most major economies, sluggish global trade, and the tightest financial conditions in decades.  Global trade growth in 2024 is expected to be only half the average in the decade before the pandemic, the multilateral agency said.

“Without a major course correction, the 2020s will go down as a decade of wasted opportunity,” said Indermit Gill, the World Bank Group’s chief economist and senior vice-president.

“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. That would obstruct progress on many global priorities. Opportunities still exist to turn the tide. This report offers a clear way forward: it spells out the transformation that can be achieved if governments act now to accelerate investment and strengthen fiscal policy frameworks,” Gill said.

The report offers the first global analysis of what it will take to generate a sustained investment boom, drawing from the experience of 35 advanced economies and 69 developing economies over the past 70 years.

It finds that developing economies often reap an economic windfall when they accelerate per capita investment growth to at least 4% and sustain it for six years or more: the pace of convergence with advanced-economy income levels speeds up, the poverty rate declines more swiftly, and productivity growth quadruples

“Investment booms have the potential to transform developing economies and help them speed up the energy transition and achieve a wide variety of development objectives,” said Ayhan Kose, the World Bank’s deputy chief economist and director of the Prospects Group.

“To spark such booms, developing economies need to implement comprehensive policy packages to improve fiscal and monetary frameworks, expand cross-border trade and financial flows, improve the investment climate, and strengthen the quality of institutions. That is hard work, but many developing economies have been able to do it before. Doing it again will help mitigate the projected slowdown in potential growth in the rest of this decade,” Kose added.

India powers South Asia to top of developing zones

Robust economic growth in India, which accounted for more than three-fourths of output in the region in 2023, helped South Asia remain the fastest growing area among developing economies, the World Bank said in the report.

In India, despite some slowing, a strong performance was driven by robust public investment growth and vibrant services activity, the Global Economic Prospects report said.

“Merchandise exports slowed due to weak external demand, but domestic demand for consumer services and exports of business services sustained India’s economic growth,” it said.

Growth in South Asia is estimated to have slowed slightly to 5.7% in the calendar year 2023, and will further slow to a still-robust 5.6% pace this year, before firming to 5.9% next year, the World Bank added.

The World Bank sees India’s growth softening to 6.3% in the current fiscal year before edging up to 6.4% in the next fiscal year.

India’s gross domestic product will grow by 7.3% in fiscal 2024, above the 7.2% growth in the previous fiscal, the Indian government’s advance estimates released last week showed.

Risks to the forecast remain tilted to the downside, with the most pressing concerns revolving around higher energy and food prices caused by an escalation of the conflict in the Middle East and adverse spillovers stemming from larger-than-expected increases in policy rates in advanced economies, the multilateral agency said.

Elevated external and fiscal financing needs, the growing frequency and severity of extreme weather events, and sharper-than-expected growth slowdown in trading partners also pose risks to the region, it added.

Heightened uncertainty around elections in 2024 in some countries is also a downside risk in the region, but the implementation of growth-friendly policies after elections could improve growth prospects, it said.

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