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Global Economic Growth Stabilizes at 2.6%

World economic growth is projected to stabilize at 2.6% in 2024, according to the World Bank's latest Global Economic Prospects report. This marks the first stabilization in three years. However, 80% of the world population is expected to experience slower growth compared to the pre-COVID decade.  

Stabilizing Growth: A Mixed Picture

After years of economic turbulence, the global economy is finding its footing. The World Bank's forecast shows global growth holding steady at 2.6% in 2024, with a slight increase to 2.7% in 2025-26. This stabilization is a welcome sign, but it comes with significant challenges. Key Projections: - Global Growth: 2.6% in 2024, rising to 2.7% in 2025-26. - Developing Economies: Average growth of 4% in 2024-25. - Low-Income Economies: Growth expected to rise to 5% in 2024. - Advanced Economies: Steady growth at 1.5% in 2024, increasing to 1.7% in 2025. - Global Inflation: Expected to moderate to 3.5% in 2024 and 2.9% in 2025.  

Challenges for Developing Economies

While the stabilization is promising, many developing economies face slower growth. The World Bank projects an average growth of 4% for these economies over 2024-25, slightly slower than in 2023. Low-income economies are expected to see growth accelerate to 5% in 2024, up from 3.8% in 2023. However, three out of every four low-income economies have had their growth forecasts downgraded since January. "Four years after the upheavals caused by the pandemic, conflicts, inflation, and monetary tightening, it appears that global economic growth is steadying," said Indermit Gill, the World Bank Group's Chief Economist and Senior Vice President. "However, growth is at lower levels than before 2020."   Financial Strain on Developing Economies Developing economies continue to grapple with significant financial challenges. The report indicates that one in four developing economies will remain poorer than they were in 2019, pre-pandemic. The income gap between developing and advanced economies is set to widen in nearly half of the developing economies through 2020-24, the highest share since the 1990s.  

Inflation and Interest Rates

Global inflation is forecasted to moderate to 3.5% in 2024 and 2.9% in 2025. Despite the moderation, the pace of decline is slower than projected six months ago. This slower pace means central banks are expected to remain cautious in lowering policy interest rates, leading to higher global interest rates by recent historical standards. "Although food and energy prices have moderated across the world, core inflation remains relatively high—and could stay that way," said Ayhan Kose, the World Bank's Deputy Chief Economist and Director of the Prospects Group. "That could prompt central banks in major advanced economies to delay interest-rate cuts."   Impact of Public Investment The report highlights the crucial role of public investment in driving economic growth. Public investment in developing economies has halved since the global financial crisis, dropping to an annual average of 5% over the past decade. Yet, for economies with ample fiscal space and efficient government spending, scaling up public investment by 1% of GDP can increase output by up to 1.6% over the medium term.   Growth Projections by Economy Type Economy Type 2024 Growth Rate 2025 Growth Rate Global 2.6% 2.7% Developing Economies 4.0% 4.0% Low-Income Economies 5.0% 5.0% Advanced Economies 1.5% 1.7%  

Special Focus: Small States

Small states, defined as those with populations around 1.5 million or less, are facing chronic fiscal difficulties. Two-fifths of the 35 developing economies that are small states are at high risk of debt distress or already experiencing it. Comprehensive reforms are needed to address these challenges, including: - Drawing revenues from a more stable and secure tax base. - Improving spending efficiency, especially in health, education, and infrastructure. - Adopting fiscal frameworks to manage the higher frequency of natural disasters and other shocks.   In Conclusion The World Bank's Global Economic Prospects report provides a cautiously optimistic outlook for global economic growth. While stabilization at 2.6% marks a positive development, the slower growth rates for a majority of the global population underscore the need for targeted investments and international support. Developing economies, in particular, must navigate financial strains and leverage public investment to foster sustainable growth. As global inflation moderates and interest rates remain high, central banks and policymakers face a delicate balancing act to ensure long-term economic resilience.   Sources: THX News & World Bank. Read the full article