A World Bank report says the US economy is improving global outlook

The global economy is in better shape than it was at the start of the year, thanks largely to the performance of the United States, the World Bank said in its latest forecast on Tuesday. But the sunny outlook will be clouded if major central banks – including the Federal Reserve – keep interest rates at elevated levels.

Global growth is expected to reach 2.6 percent this year, up from 2.4 percent in January, the bank said. The global economy is nearing a “soft landing” after recent price hikes, with average inflation falling to a three-year low amid continued growth, bank economists said.

Although Americans’ dissatisfaction with high prices is a major blow to President Biden’s re-election bid, the World Bank now expects the US economy to grow 2.5 percent a year, almost a full percentage point higher than forecast. In January. The US is the only advanced economy growing significantly faster than the bank expected at the start of the year.

“Globally, overall things are better today than they were four or five months ago,” said Intermid Gill, chief economist at the World Bank. “A large part of this has to do with the recession of the US economy.”

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The bank praised “American dynamism” in helping to stabilize the global economy despite years of high interest rates and wars in Ukraine and the Middle East. Employers added 272,000 jobs May topped analysts’ estimates, the Labor Department reported last week.

However, global growth expected this year and next will remain below the pre-pandemic average of 3.1 percent. Three out of four developing countries are expected to grow more slowly than bank forecasts in January, which is expected to narrow the income gap with rich countries.

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Despite their mostly upbeat tone, bank officials cautioned that central banks, including the Fed, may move slowly to reverse interest rate hikes over the past two years. That means global interest rates will average 4 percent over the next two years, more than double the average recorded in the previous two decades. Epidemic

Global inflation must fall to 3.5 percent this year, before easing to 2.9 percent next year. But the decline is proving to be more gradual than the bank expected. And any decline would cause monetary authorities to delay cuts in borrowing costs 0.3 percentage points could be removed from forecast growth rates.

“This is a major risk facing the global economy — interest rates remain high for a long period of time and an already weak growth outlook weakens,” Gill said.

Bank officials have flagged global trade — which is set to mark its weakest half-decade since the 1990s this year — as a concern. By 2024, trading nations have implemented more than 700 restrictions on trade in goods and nearly 160 barriers to trade in services.

“Trade control measures have increased. They’ve doubled since the pre-pandemic period,” Gill said.

Rising protectionism risks becoming a drag on the world economy’s already moderate pace of growth. Public support in many countries for tariffs on imported goods and industrial subsidies to favor domestic production could further restrict trade flows that are already under pressure from US-China rivalry and other geopolitical risks.

“The world could be stuck in a slow lane,” said the bank’s deputy chief economist, Ayhan Ghose.

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40 percent of developing countries are at risk of debt crisis among those most vulnerable if key interest rates remain high for a long period of time. Many borrowed heavily to finance health care related to the pandemic and to cover high food and fertilizer costs following the war in Ukraine.

They have no immediate prospect of debt relief and now risk losing trade gains as major economies turn inward, Gill said.

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