World Bank Report: Global Growth Stabilizes Amid Challenges

Global Economic Outlook for 2024-2026

The World Bank's latest Global Economic Prospects report presents a stabilizing yet subdued outlook for the global economy. After three years of volatility, global growth is projected to hold steady at 2.6% in 2024, with a slight increase to an average of 2.7% in 2025-26. However, this growth falls short of the pre-pandemic decade's 3.1% average, indicating a sluggish recovery.

Developing economies are expected to grow by 4% on average over 2024-25, marginally slower than in 2023. Low-income economies show promise with projected growth accelerating to 5% in 2024 from 3.8% in 2023, although three out of four such economies face growth forecast downgrades. Advanced economies are anticipated to maintain a steady growth of 1.5% in 2024, rising to 1.7% in 2025.

Despite these projections, the report highlights that countries representing over 80% of the world's population and global GDP will likely grow more slowly than in the pre-pandemic decade. Moreover, one in four developing economies is expected to remain poorer than their pre-pandemic levels, with this proportion doubling for fragile and conflict-affected countries.

Persistent Challenges and Risks

The report identifies several ongoing challenges that contribute to the subdued global outlook. Inflation, while moderating, is declining at a slower pace than previously projected. Global inflation is expected to ease to 3.5% in 2024 and 2.9% in 2025, but core inflation remains relatively high. This trend may prompt central banks to maintain cautious stances on lowering policy interest rates.

Consequently, global interest rates are likely to remain elevated compared to recent decades, averaging about 4% over 2025-26—double the 2000-19 average. This "higher-for-longer" interest rate environment could lead to tighter global financial conditions and weaker growth in developing economies.

The income gap between developing and advanced economies is also widening, with nearly half of developing economies experiencing this trend over 2020-24—the highest share since the 1990s. Per capita income growth in these economies is projected at 3.0% on average through 2026, significantly below the pre-pandemic decade's 3.8% average.

Additionally, public investment growth in developing economies has halved since the global financial crisis, dropping to an annual average of 5% in the past decade. Small states, particularly those with populations around 1.5 million or less, face chronic fiscal difficulties, with two-fifths at high risk of debt distress or already in distress.

Recommendations and Policy Priorities

To address these challenges, the World Bank emphasizes the need for global cooperation and targeted policy interventions. Key priorities include safeguarding trade, supporting green and digital transitions, delivering debt relief, and improving food security.

For emerging markets and developing economies (EMDEs), the report suggests that public investment can boost productivity and catalyze private investment, thereby promoting long-run growth. In economies with ample fiscal space and efficient government spending practices, scaling up public investment by 1% of GDP could increase output levels by up to 1.6% over the medium term.

Small states require comprehensive fiscal reforms to overcome their unique challenges. These may include developing a more stable and secure tax base, improving spending efficiency in health, education, and infrastructure, and adopting fiscal frameworks to manage frequent natural disasters and other shocks.

The report also calls for international support, particularly for the poorest economies eligible for concessional assistance from the International Development Association. Without such support, these countries may struggle to encourage private investment, reduce public debt, and improve essential services and infrastructure.

In conclusion, while the global economy shows signs of stabilization, significant efforts are needed at both national and international levels to address persistent challenges, mitigate risks, and foster inclusive, sustainable growth.