WASHINGTON, June 12 — The World Bank has said the United States’ (US) economy’s stronger-than-expected performance has prompted it to lift its 2024 global growth outlook slightly.
However, it also warned that overall output would remain well below pre-pandemic levels through 2026.
In its latest Global Economic Prospects report published on Tuesday, the World Bank said that the global economy would avoid a third consecutive drop in real GDP growth since a major post-pandemic jump in 2021, with 2024 growth stabilising at 2.6 per cent, unchanged from 2023.
That is up 0.2 percentage points from the World Bank’s January forecast, largely on the strength of US demand.
“In a sense, we see the runway for a soft landing,” World Bank Deputy Chief Economist Ayhan Kose told Reuters in an interview.
He noted that sharply higher interest rates have brought down inflation without major job losses and other disruptions in the US or other major economies.
“That is the good news. What is not good news is that we may be stuck in the slow lane,” Kose said.
The World Bank forecast global growth of 2.7 per cent in both 2025 and 2026, a level well below the 3.1 per cent global average in the decade prior to Covid-19.
It also is forecasting that interest rates in the next three years will remain double their 2000-2019 average, keeping a brake on growth and adding debt pressure to emerging market countries that have borrowed in dollars.
Countries representing 80 per cent of the world’s population and GDP output will see weaker growth through 2026 than they had prior to the pandemic.
“Prospects for the world’s poorest economies are even more worrisome. They face punishing levels of debt service, constricting trade possibilities and costly climate events,” said World Bank Chief Economist Indermit Gill.
He added that those countries will continue to require international assistance to fund their needs.
The report contains an alternative “higher-for-longer” interest rate scenario, in which persistent inflation in advanced economies keeps interest rates about 40 basis points above the lender’s baseline forecast, cutting 2025 global growth to 2.4 per cent.
US buoyant
Strong demand and higher inflation readings in the US have delayed expectations for the US Federal Reserve rate cuts, and the US economy is defying predictions of a downturn for the second year in a row.
The World Bank is now forecasting 2.5 per cent US growth for 2024 — matching the 2023 pace — and up sharply from the January forecast of 1.6 per cent.
Kose said the US upgrade accounts for about 80 per cent of the added global growth since the January forecast.
The World Bank also upgraded China’s 2024 growth forecast to 4.8 per cent from 4.5 per cent in January, largely due to increased exports that have offset soft domestic demand.
However, it forecasts that China’s growth will fall to 4.1 per cent in 2025 amid weak investment and consumer confidence and an ongoing property-sector downturn.
India also saw a forecast upgrade for 2024 to 6.6 per cent from 6.4 per cent in January amid strong domestic demand.
The World Bank cut Japan’s 2024 growth forecast to 0.7 per cent from 0.9 per cent due to weak consumption growth, slowing exports, and stabilising tourism demand.
It left its 2024 Eurozone forecast unchanged at 0.7 per cent amid the bloc’s continued difficulties with high energy costs and weaker industrial output.
Conflict risks
In addition to the higher-for-longer rate scenario, the World Bank said the biggest downside risks to the global outlook included greater spillovers from armed conflicts in Gaza and in Ukraine.
A wider war in the Middle East could cause further disruptions to shipping and push up oil prices and inflation. Likewise, more uncertainty about the path of Russia’s invasion of Ukraine could also disrupt markets for oil and grains while choking investment into neighbouring countries.
Increasing trade restrictions driven by geopolitical rivalries could also hamper the recovery of global trade volume growth, which was barely perceptible last year at about 0.1 per cent. The World Bank forecast a rebound to 2.5 per cent in 2024, up from 2.3 per cent in the January forecast.
However, it said rising protectionism and industrial policies in many countries could lead to more inefficiencies in global supply chains and reduce investment in emerging markets and developing countries.
A deeper downturn in China, the world’s second-largest economy, would hamper growth, especially in commodity exporters and trade-intensive economies.
On the upside, the World Bank said the US could continue to surpass expectations, boosting global growth with lower inflation if elevated productivity and labour supply due to immigration prove persistent.
Lower inflation globally, supported by productivity gains, improved supply chains, and easing commodity prices, could prompt central banks to cut interest rates more quickly than now expected, boosting credit growth.
— Reuters
