The global economy is at risk of a “wasted” decade and the weakest stretch of growth in 30 years, the World Bank warned on Tuesday, expected to weigh heavily on a sluggish recovery from the pandemic and crippling wars in Ukraine and the Middle East. In publication.
In its semi-annual Global Economic Prospects report, the World Bank forecast that global output growth would slow further in 2024, falling from 2.6 percent to 2.4 percent. While the global economy has remained surprisingly resilient, its projections are subject to greater uncertainty due to two wars, a slowing Chinese economy and rising risks of natural disasters caused by global warming, the report warned.
Converging crises in recent years have put the global economy on the weakest path in half a decade, the weakest in 30 years.
“Without a major course correction, the 2020s will go down as a decade of wasted opportunity,” said Intermediate Gill, chief economist at the World Bank Group.
In 2024, global growth is forecast to decline for the third year in a row. Developing countries are bearing the brunt of the recession, with high borrowing costs and anemic trade volumes weighing down their economies.
Although policymakers have made progress in reducing inflation from its 2022 peak, the Gaza war between Israel and Hamas threatens to escalate into a wider conflict that could lead to new price hikes by driving up oil and food prices.
“The recent conflict in the Middle East, which comes on top of the Russian Federation's invasion of Ukraine, has heightened geopolitical risks,” the report said. “An escalation of conflict could lead to higher energy prices, with broader implications for global activity and inflation.”
Signs of weakness in the Chinese economy are also worrying. Economists at the World Bank pointed to lingering weakness in China's property sector and sluggish consumer spending as evidence that the world's second-largest economy will continue to perform well this year. They suggested that this could be a headache for some of China's trading partners in Asia.
China's growth is expected to slow to 4.5 percent this year from 5.2 percent in 2023. Outside of a pandemic-induced slowdown, this would be China's slowest expansion in 30 years.
Europe and the US are poised for another year of weak production in 2024.
The World Bank forecasts that economic growth in the euro area will rise from 0.4 percent in 2023 to 0.7 percent in 2024. Despite easing inflation and rising wages, tight credit conditions are expected to restrain economic activity.
Growth in the United States is expected to slow from 2.5 percent in 2023 to 1.6 percent this year. The World Bank blames the recession on raised interest rates – at their highest level in 22 years – and a pullback in government spending. Businesses are expected to be cautious about investing due to economic and political uncertainty, including the 2024 election.
Despite such slow growth, Biden administration officials say they deserve credit for containing inflation while keeping the economy afloat.
Treasury Secretary Janet L. “I think we've made tremendous progress,” Yellen said. “It's very unusual to have a period of low inflation when the labor market is strong.”
He added: “But that's what we're seeing, and that's why I say we're experiencing a soft landing.”