The World Bank's latest Global Economic Prospects report paints a bleak picture of the global economy, forecasting the slowest half-decade of GDP growth in 30 years by the end of 2024. Despite a diminished risk of a global recession compared to a year ago, the medium-term outlook is marred by slowing growth, stagnant global trade, and the most challenging financial conditions in decades.
The report highlights that global trade growth in 2024 is expected to be only half the average of the decade preceding the pandemic. Developing economies, particularly those with poor credit ratings, are likely to face steep borrowing costs due to global interest rates stuck at four-decade highs in inflation-adjusted terms.
Global growth is anticipated to decelerate for the third consecutive year, dropping from 2.6% in the previous year to 2.4% in 2024—nearly three-quarters of a percentage point below the 2010s average.
Developing economies are projected to grow by just 3.9%, more than one percentage point below the previous decade's average. Low-income countries, in particular, are expected to witness weaker growth at 5.5%, raising concerns about increasing poverty levels.
Indermit Gill, Chief Economist and Senior Vice President of the World Bank Group, warned, "Without a major course correction, the 2020s will go down as a decade of wasted opportunity." Gill emphasised the need for immediate action, especially for developing countries facing high levels of debt and food insecurity.
The report suggests that to address climate change and achieve global development goals by 2030, developing countries must significantly increase investment—approximately $2.4 trillion per year. However, the prospects for such an increase appear dim without comprehensive policy measures.
Per capita investment growth in developing economies between 2023 and 2024 is expected to average only 3.7%, barely half the rate of the previous two decades.
The World Bank proposes a comprehensive policy package to stimulate sustained investment growth, drawing from the experiences of advanced and developing economies over the past 70 years.
The report indicates that when developing economies accelerate per capita investment growth to at least 4% and sustain it for six years or more, they experience a rapid convergence with advanced-economy income levels, a decline in poverty rates, and quadrupled productivity growth.
Ayhan Kose, the World Bank’s Deputy Chief Economist, emphasised the potential of investment booms to transform developing economies and facilitate progress in various development objectives.
Kose outlined the need for comprehensive policy packages, including improvements to fiscal and monetary frameworks, expanded cross-border trade and financial flows, enhanced investment climate, and strengthened institutions.
Additionally, the report identifies specific measures for commodity-exporting developing economies to avoid boom-and-bust cycles. These nations often exhibit procyclical fiscal policies, intensifying economic fluctuations.
To mitigate this, the report recommends implementing fiscal frameworks to discipline government spending, adopting flexible exchange-rate regimes, and avoiding restrictions on international capital movement.
These measures could potentially boost per capita GDP growth by up to 1 percentage point every four or five years. Building sovereign-wealth funds and rainy-day funds is also suggested to provide a financial buffer during emergencies.
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