WASHINGTON — The World Bank on Tuesday upgraded its outlook for the global economy, estimating it will grow 2.6% this year thanks to continued growth in the United States.
The bank’s latest outlook points to an increase from the 2.4% growth for 2024 that it forecast in January. And it would correspond to global economic growth of 2.6% in 2023.
But the agency warned that global growth remains sluggish by past standards, the poorest countries are struggling under the weight of heavy debt and high interest rates and rising trade barriers are endangering prosperity worldwide. The brutal wars in Ukraine and Gaza are putting further pressure on regional economies.
Stronger-than-expected growth in the United States – the world’s largest economy – accounted for 80% of the World Bank’s upgraded outlook. The agency now expects the US economy to grow 2.5% in 2024, the same as in 2023, but significantly higher than the 1.6% the bank forecast in January.
“Growth in the US is exceptional,” Ayhan Kose, the bank’s deputy chief economist, told The Associated Press ahead of the release of its latest Global Economic Prospects report.
The World Bank, made up of 189 member states, seeks to reduce poverty and raise living standards by providing grants and low-interest loans to developing economies.
From January through March, the U.S. economy grew at just an annual rate of 1.3%, the slowest pace in nearly two years. According to Kose, the World Bank forecast took into account the slowdown in the first quarter. The decline was largely due to factors that economists see as temporary: a surge in imports and a reduction in business inventories. In contrast, the core components of economic growth – consumer spending and business investment – remained solid in the first three months of the year.
The global and especially the US economies have proven unexpectedly resilient in the face of high interest rates devised by the Federal Reserve and other central banks to curb the high inflation that flared up in 2021.
But even after the World Bank upgrade, global growth appears sluggish – half a percentage point below the 2010-2019 average. Inflation has cooled significantly – from 7.2% in 2022 to 4.9% last year to a forecast 3.5% in 2024 – but remains above where central banks want it. This means that central bank policymakers may be cautious about lowering interest rates from their current high levels.
However, this approach also entails risks, in particular the danger that high interest rates will cause economic growth to slow down too much.
“There are consequences if interest rates remain high for an extended period of time,” Kose said. “You end up with slower growth. We must avoid lower and longer economic growth around the world.”
“The world,” he warned, “could get stuck in the slow lane.”
Many countries are already under pressure. The World Bank expects emerging markets and developing countries to grow collectively by 4% this year, up from 4.2% in 2023. In many cases, their populations are outpacing their economies, reducing their annual per-person income growth to 3% this year through 2026 – well below the average 3.8% in the decade before the pandemic hit.
China, the world’s largest economy after the United States, is struggling with the collapse of the real estate market and weak consumer confidence. China’s economy is expected to slow from 5.2% in 2023 to 4.8% this year.
Growth in Latin America is expected to slow from 2.2% last year to 1.8% in 2024. The World Bank expects the economy of the sub-Saharan part of Africa to grow by 3.5% growth, modest but higher than last year’s 3%.
The 20 European countries sharing the euro, hit by the fallout from Russia’s war on Ukraine, are expected to achieve growth of 0.7% in 2024, although that would be almost double the growth rate of 0.4 % in 2023.
The World Bank expects Japan’s economic growth, hampered by sluggish consumer spending and stagnant exports, to slow this year to 0.7% from 1.9% in 2023.
Countries around the world imposed a record number of measures to restrict trade last year, partly due to geopolitical tensions, especially between the United States and China. Measured by volume, world trade barely grew last year – 0.1% – and is expected to grow by an even meager 2.5% in 2024.
The World Bank says it is concerned that faltering trade will hold back global growth.
“We would like to solve these problems,” Kose said, “by talking to each other and finding common ground,” rather than by erecting trade barriers.