Worldwide economic growth is set to slow for the third straight year in 2024 but defy fears of a recession, according to a new World Bank forecast.
The global growth rate is expected to decrease this year to 2.4% from an estimated 2.6% last year, according to the World Bank’s latest Global Economic Prospects report. In 2025, it is expected to tick back up to 2.7%.
The forecast for a 2024 slowdown, according to the World Bank, is due to weak global trade and the effects of elevated interest rates that central banks hiked to cool inflation. Many countries are expected to cut rates this year.
Yet the pullback in 2024 won't be enough to trigger a global recession, according to the World Bank.
"It's rare for countries to bring inflation rates down without triggering a downturn. But this time, a soft landing seems increasingly possible," according to the World Bank’s report.
The risk of a global recession has receded largely because of the strength of the US economy, which showed surprising resilience in 2023.
But there remain downside risks to growth, according to the World Bank, including an escalation of the recent conflict in the Middle East and the potential for spikes in commodity prices that could push up inflation.
Other dangers are the potential for financial stress from elevated debt and high borrowing costs, trade fragmentation, climate-related disasters, and weaker-than-expected growth in China.
China's growth is expected to slow to 4.5% this year from an estimated over 5% last year — marking the slowest pace in 30 years outside the pandemic. Tepid consumer sentiment and a continued downturn in the property sector are expected to temper that growth.
China’s economy is also being weighed down by an aging and shrinking population. The World Bank estimates that if China’s GDP clocks in 1% lower than forecast that will lower overall global growth by 0.2% and could trigger negative spillover effects.
Developing economies are projected to grow just 3.9%, more than one percentage point below the average of the previous decade. Overall global growth is also still below the average of the 2010s.
This year, US growth is expected to slow to 1.6%, with high real interest rates constraining growth.
Consumer spending is expected to slow as savings are drawn down, borrowing costs remain higher, and the job market eases. The World Bank expects government spending will be reined in as elevated interest rates and weakening growth weigh on the federal budget.
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While overall headline inflation has dropped globally, core inflation, which excludes volatile food and energy prices, has been more persistent, especially in advanced economies where the job markets remain strong.
As a result, the World Bank believes interest rates in advanced economies will drop only gradually, translating to higher longer-term market rates than before the pandemic.
Beyond the next two years, the outlook is dark. Most economies — advanced as well as developing — are set to grow more slowly than they did in the decade before COVID-19, marked by sluggish global trade, and the tightest financial conditions in decades.
The last five years of this decade are on pace to show one of the weakest global growth performances of any half-decade since the 1990s, with people in one out of every four developing economies poorer than they were before the pandemic.
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