Global economy set to record worst half-decade growth in 30 years, World Bank says

Geopolitical tensions and conflict in the Middle East are adding to downside risks

Shipping containers stacked at Nanjing port in Jiangsu province. Weaker-than-expected economic activity in China is a downside risk to the global economic outlook, the World Bank says. AFP
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The global economy is set to post the slowest half-decade growth in 30 years, with the raging conflict in the Middle East among key downside risks to the outlook, the World Bank has said.

Most advanced and developing economies will grow more slowly this year and next than they did in the decade before the Covid-19 pandemic, with global gross domestic product slowing for a third year in a row to 2.4 per cent in 2024 before increasing to 2.7 per cent in 2025.

The rate of economic expansion is far below the 3.1 per cent average the world economy recorded in the decade ending in 2020, the World Bank said in its latest Global Economic Prospects report on Tuesday.

“The end of 2024 will mark the halfway point of what was expected to be a transformative decade for development, when extreme poverty was to be extinguished, when major communicable diseases were to be eradicated and when greenhouse-gas emissions were to be cut nearly in half,” said Indermit Gill, senior vice president and chief economist at the World Bank.

“What looms instead is a wretched milestone: the weakest global growth performance of any half-decade since the 1990s, with people in one out of every four developing economies poorer than they were before the pandemic.”

Per capita investment growth in 2023 and 2024 is expected to average only 3.7 per cent – barely half the average of the previous two decades, the World Bank said.

“Without corrective action, global growth will remain well below potential for the remainder of the 2020s,” Mr Gill said.

The global economy is in a better place than it was a year ago, with the risk of a recession receding on the back of the strength of the US economy.

However, mounting geopolitical tensions could create “fresh near-term hazards for the world economy”, the Washington-based multilateral lender said.

Beyond the next two years, the outlook is dark
Indermit Gill, senior vice president and chief economist at the World Bank

The medium-term global outlook has darkened for many developing countries amid slowing growth in most major economies, sluggish trade and the tightest financial conditions in decades.

Global trade growth in 2024 is expected to be only half the average of the decade before the pandemic.

Borrowing costs for developing economies – especially those with poor credit ratings – are likely to remain steep, with global interest rates stuck at four-decade highs in inflation-adjusted terms, the World Bank report said.

“Beyond the next two years, the outlook is dark,” Mr Gill said.

Downside risks to the outlook include an escalation of the recent conflict in the Middle East and associated commodity market disruption, financial stress amid elevated debt and high borrowing costs, as well as persistent inflation.

Weaker-than-expected economic activity in China, trade fragmentation and climate-related disasters are also risks to consider, the report said.

Despite persistently high inflation, the global economy skirted a potential recession last year. Interest rates jacked up by the US Federal Reserve as well as central banks around the globe to curb consumer prices are set to start coming down this year.

The International Monetary Fund expects the global economy to expand by 2.9 per cent this year, while the Organisation for Economic Co-operation and Development forecasts growth at 2.7 per cent.

Economic activity, however, remains divergent, with subdued growth in major economies alongside improving conditions in emerging markets and some developing economies (EMDEs) with solid fundamentals.

“The outlook for EMDEs with pronounced vulnerabilities remains precarious amid elevated debt and financing costs,” the World Bank said.

In the Mena region, uncertainty triggered by the Israel-Gaza war has clouded the outlook.

“The economic outlook for the West Bank and Gaza remains highly uncertain, with growth projected to shrink by 6 per cent this year, following a 3.7 per cent contraction in 2023,” the World Bank said.

“Massive destruction of fixed assets in Gaza will cause a significant contraction of economic activity. The ongoing conflict will also exacerbate already dire economic conditions in West Bank.”

However, a de-escalation in the war and subsequent reconstruction efforts are expected to contribute to a rebound of growth to 5.4 per cent in the West Bank and Gaza next year, the lender said.

For the broader Mena region, the World Bank expects growth to pick up pace to 3.5 per cent in 2024 and 2025, higher than its June 2023 estimates, reflecting stronger-than-expected expansion among oil exporters.

Growth in the six-member economic bloc of the GCC is forecast to rise to 3.6 per cent this year and 3.8 per cent in 2025.

Among other oil exporters, the expansion of production due to relaxed cuts in early 2024 is projected to contribute to faster growth.

In oil importers, growth is expected to edge up to 3.2 per cent this year and 3.7 per cent in 2025, the World Bank said.

Updated: January 10, 2024, 3:22 AM