The World Bank has upgraded its outlook for the global economy, predicting it will expand 2.6% this year thanks to continued growth in the United States.
WASHINGTON — The World Bank on Tuesday upgraded its global economic outlook, predicting the global economy will expand 2.6% this year, driven by continued growth in the United States.
The bank's latest forecast is up from a 2.4% growth rate it predicted in January for 2024. That would be in line with global economic growth of 2.6% in 2023.
But the agency warned that global economic growth remains weak by historical standards, the poorest countries are struggling with high debt and high interest rates, and growing trade barriers are putting global prosperity at risk. Brutal wars in Ukraine and Gaza are putting further pressure on regional economies.
Better-than-expected growth in the United States, the world's largest economy, accounted for 80 percent of the World Bank's upward projection revisions. The organization now expects the U.S. economy to grow 2.5% in 2024, the same as in 2023 but up sharply from the 1.6% the World Bank projected in January.
“U.S. growth has been an exception,” Ayhan Kose, deputy chief economist at the World Bank, told The Associated Press ahead of the release of the bank's latest World Economic Outlook report.
The World Bank, which has 189 member countries, aims to reduce poverty and improve living standards by providing grants and low-interest loans to developing countries.
In January-March, the U.S. economy expanded at just a 1.3% annual rate, the slowest pace in two years. Kohze said the World Bank's forecast takes into account a slowdown in the first quarter. The setback was largely due to factors economists view as temporary: a surge in imports and a decline in business inventories. By contrast, consumer spending and business investment, core components of economic growth, held steady in the first three months of the year.
Despite the high interest rates set by the Federal Reserve and other central banks to curb inflation that has soared in 2021, the global economy, and especially the U.S. economy, has shown unexpected resilience.
But even after the World Bank's upgrade, global economic growth appears to be sluggish: half a percentage point below the 2010-2019 average. Inflation has fallen sharply: from 7.2% in 2022 to 4.9% last year and projected to be 3.5% in 2024, but still higher than central banks would like, meaning central bank policymakers may be cautious about cutting interest rates from their current high levels.
But this approach carries its own risks, particularly the risk that high borrowing rates could slow economic growth too much.
“Keeping interest rates high for a long period of time ultimately leads to slower growth,” Kohze said. “We need to avoid a long period of sluggish economic growth around the world.”
“The world may get stuck in the slow lane,” he warned.
Many countries are already under strain: The World Bank projects growth across emerging market and developing economies to slow to 4% this year, down from 4.2% in 2023. With populations outpacing economic growth in many countries, annual per capita income growth will slow to 3% between this year and 2026, well below the 3.8% average in the decade before the pandemic hit.
China, the world's second-largest economy after the United States, is struggling with a collapsing real estate market and sagging consumer confidence. Its economy is expected to grow at 4.8 percent this year from 5.2 percent in 2023.
Growth in Latin America is projected to slow to 1.8% in 2024 from 2.2% last year. The World Bank sees Sub-Saharan Africa's economy growing 3.5%, up from 3% last year, though it is expected to grow at a slower pace.
The 20 European countries that share the euro currency, hit hard by the fallout from Russia's war in Ukraine, are expected to barely grow 0.7 percent in 2024, nearly double the 0.4 percent growth in 2023.
The World Bank expects Japan's economic growth to slow to 0.7% this year from 1.9% in 2023 due to sluggish consumption and weak exports.
Last year, countries around the world implemented a record number of trade restrictions, due in part to geopolitical tensions, particularly between the United States and China. In terms of volume, world trade grew just 0.1% last year and is forecast to grow just 2.5% in 2024.
The World Bank has said it is concerned that a slowdown in trade could cripple global growth.
“We want to resolve these issues by talking to each other and finding common ground, not by building trade barriers,” Kohze said.