Sometimes, you wonder if bodies like the World Bank are in touch with reality. There it was on Tuesday, in its first report on prospects for global growth this year and next, moaning about weak levels of growth and lost opportunities over the past five years.
According to the World Bank, the global economy is on course to record its worst half-decade of growth in 30 years. It says global growth is forecast to slow for the third year in a row in 2024, dipping to 2.4% from 2.6% in 2023, and growth is then expected to rise marginally to 2.7% in 2025. However, acceleration over the five-year period will remain almost three-quarters of a percentage point below the average rate of the 2010s.
Despite the global economy showing a high level of resilience in the face of a multitude of threats from 2020 onwards, increased geopolitical tensions will present fresh near-term challenges, the organization said, leaving most economies set to grow more slowly in 2024 and 2025 than they did in the previous decade.
“You have a war in Eastern Europe, the Russian invasion of Ukraine. You have a serious conflict in the Middle East. Escalation of these conflicts could have significant implications for energy prices that could have impacts on inflation as well as on economic growth,” Ayhan Kose, the World Bank’s deputy chief economist, told CNBC.
The bank warned that without a “major (policy) course correction,” the 2020s will go down as “a decade of wasted opportunity.”
And yet the real story is how lucky we are to have gotten to this point this decade without a nasty global slump.
The global economy has survived the pandemic, thanks to strong and rapid government intervention through fiscal, monetary, and social policies (vaccinations, for example).
Then there’s the continuing impact of the Russian invasion of Ukraine, which saw 30-year peaks in inflation and volatile energy costs (especially in Europe), which Russia and the Saudis have tried to exploit with production cuts but without too much success.
There’s also growing political instability from the right in the US (Donald Trump), Europe, the UK, and in Australia. That is making life tougher for democratically elected governments and central banks to choose the best policy direction.
The sharp rise in inflation saw monetary policy tightened globally, with the dangers of higher rates sending growth sliding. While there’s been a slowing, labor markets around the world remain intact and not showing too many strains.
The fighting in Gaza and other parts of the Middle East are a very real danger, but so is an out-of-control Russia. On top of this, there’s the continuing pressure on growth, on economies, and communities from climate change, which will only worsen in the coming years.
Rather than half a year of “wasted opportunity,” the 2020s so far have been years of resilience, tenacity, with the continuing capacity for new ideas – AI in all its forms, for example.
The World Bank does point out that developing economies will be the hardest hit on a medium-term basis as sluggish global trade and tight financial conditions weigh heavily on growth.
“Near-term growth will remain weak, leaving many developing countries — especially the poorest — stuck in a trap: with high levels of debt and tenuous access to food for nearly one out of every three people,” Indermit Gill, the World Bank Group’s chief economist said on Tuesday.
Developing economies are now expected to grow by just 3.9% in 2024, more than 1 percentage point below the average of the previous decade. By the end of the year, people in about 1 out of every 4 developing countries and about 40% of low-income countries will still be poorer than they were on the eve of the Covid-19 pandemic in 2019, the bank said.
On a regional basis, growth this year is set to be weaker in North America, Europe, and Central Asia, and Asia-Pacific — mainly on account of slower expansion in China. A slight improvement is forecast for Latin America and the Caribbean, coming off a low base, while more marked pickups are expected in the Middle East and Africa.
The bank did have a major point in that without continuing policy development and action by governments, issues such as health, climate change, and education needs in the poor and developing parts of the world economy will not be tackled with any vigor or chance of success.