The global economy is expected to stabilise in 2024 for the first time in three years, according to the World Bank’s latest Global Economic Prospects report. However, this stabilisation is projected to occur at a weak level compared to recent historical standards.
The World Bank forecasts global growth to remain steady at 2.6% in 2024, with a slight increase to an average of 2.7% in 2025-26. This is notably lower than the pre-Covid decade average of 3.1%. Over 2024-26, countries accounting for more than 80% of the world’s population and GDP are expected to grow more slowly than before the pandemic.
Developing economies are projected to grow at an average rate of 4% over 2024-25, slightly below the growth rate in 2023. Low-income economies are expected to grow to 5% in 2024 from 3.8% in 2023. However, growth forecasts for 2024 have been downgraded for three out of every four low-income economies since January.
In contrast, advanced economies are expected to maintain steady growth at 1.5% in 2024, with a slight rise to 1.7% in 2025.
“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. Prospects for the world’s poorest economies are even more worrisome. They face punishing levels of debt service, constricting trade possibilities, and costly climate events.”
Gill stressed the need for developing economies to attract private investment, reduce public debt, and improve education, health, and infrastructure. He noted that the poorest countries, particularly the 75 eligible for concessional assistance from the International Development Association, would need international support to achieve these goals.
One in four developing economies is expected to remain poorer than in 2019, the year before the pandemic. This proportion doubles for countries in fragile and conflict-affected situations. Furthermore, the income gap between developing and advanced economies is set to widen in nearly half of developing economies over 2020-24, the highest share since the 1990s. Per capita income in these economies is expected to grow by 3.0% on average through 2026, significantly below the pre-pandemic decade average of 3.8%.
Inflation and interest rates
Global inflation is projected to moderate to 3.5% in 2024 and 2.9% in 2025. However, the decline is slower than previously expected, prompting central banks to remain cautious in lowering policy interest rates. Global interest rates will likely stay high, averaging about 4% over 2025-26, roughly double the 2000-19 average.
“Although food and energy prices have moderated, 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. “This could lead central banks in major advanced economies to delay interest-rate cuts, resulting in tighter global financial conditions and weaker growth in developing economies.”
Public investment
The report notes that public investment growth in developing economies has halved since the global financial crisis, averaging 5% annually over the past decade. For developing economies with fiscal space and efficient spending practices, increasing public investment by 1% of GDP can raise output by up to 1.6% over the medium term.
Additionally, the report examines the fiscal challenges faced by small states, defined as those with populations around 1.5 million or less. Nearly 40% of these 35 developing small states are at high risk of debt distress or are already in it, double the rate for other developing economies. The World Bank calls for comprehensive reforms to address these fiscal challenges, including stabilising revenue bases, improving spending efficiency, and adopting fiscal frameworks to manage frequent natural disasters and other shocks.
