Hobbled by high interest rates, persistent inflation, slumping trade and a diminished China, the global economy will slow for a third consecutive year in 2024.
That is the picture sketched by the World Bank, which forecast on Tuesday that the world economy will expand just 2.4 per cent this year. That would be down from 2.6 per cent growth in 2023, 3 per cent in 2022, and a galloping 6.2 per cent in 2021, which reflected the robust recovery from the pandemic recession of 2020.
Heightened global tensions, arising particularly from Israel’s war with Hamas and the conflict in Ukraine, pose the risk of even weaker growth. And World Bank officials express worry that deeply indebted poor countries cannot afford to make necessary investments to fight climate change and poverty.
“Near-term growth will remain weak, leaving many developing countries – especially the poorest – stuck in a trap: with paralysing levels of debt and tenuous access to food for nearly one out of every three people,” Indermit Gill, the World Bank’s chief economist, said in a statement.
In recent years, the international economy has proved surprisingly resilient in the face of shock after shock: the pandemic, Russia’s invasion of Ukraine, resurgent global inflation and the burdensome interest rates that were imposed by central banks to try to bring price increases back under control. The World Bank now says the global economy grew half a percentage point faster in 2023 than it had predicted back in June, and concludes that “the risk of a global recession has receded’.”
Leading the way in 2023 was the United States, which likely registered 2.5 per cent growth last year – 1.4 percentage points faster than the World Bank had expected in midyear. The World Bank, a 189-country anti-poverty agency, expects US growth to decelerate to 1.6 per cent this year as higher interest rates weaken borrowing and spending.
The Federal Reserve has raised US interest rates 11 times since March 2022. Its strenuous efforts have helped bring US inflation down from the four-decade high it reached in mid-2022 to nearly the Fed’s 2.0 per cent target level.
Higher rates are also taming global inflation, which the World Bank foresees sinking from 5.3 per cent last year to 3.7 per cent in 2024 and 3.4 per cent in 2025, though still above pre-pandemic averages.
China’s economy, the world’s second-largest after the United States, is expected to grow 4.5 per cent this year and 4.3 per cent in 2025, down sharply from 5.2 per cent last year. China’s economy, for decades a leading engine of global growth, has sputtered in recent years: Its overbuilt property market has imploded. Its consumers are downcast, with youth unemployment rampant. And its population is ageing, sapping its capacity for growth.
Slumping growth in China is likely to hurt developing countries that supply the Chinese market with commodities, like coal-producing South Africa and copper-exporting Chile.
The World Bank expects the 20 countries that share the euro currency to eke out 0.7 per cent growth this year, a modest improvement on the 0.4 per cent expansion last year. Japan’s economy is forecast to grow just 0.9 per cent, half the pace of its 2023 expansion.