But 80% of world population will experience slower growth than in pre-COVID decade
WASHINGTON, June 11, 2024—The global economy is expected to stabilize for the first time in three years in 2024—but at a level that is weak by recent historical standards, according to the World Bank’s latest Global Economic Prospects report.
Global growth is projected to hold steady at 2.6% in 2024 before edging up to an average of 2.7% in 2025-26. That is well below the 3.1% average in the decade before COVID-19. The forecast implies that over the course of 2024-26 countries that collectively account for more than 80% of the world’s population and global GDP would still be growing more slowly than they did in the decade before COVID-19.
Overall, developing economies are projected to grow 4% on average over 2024-25, slightly slower than in 2023. Growth in low-income economies is expected to accelerate to 5% in 2024 from 3.8% in 2023. However, the forecasts for 2024 growth reflect downgrades in three out of every four low-income economies since January. In advanced economies, growth is set to remain steady at 1.5% in 2024 before rising 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. Developing economies will have to find ways to encourage private investment, reduce public debt, and improve education, health, and basic infrastructure. The poorest among them—especially the 75 countries eligible for concessional assistance from the International Development Association—will not be able to do this without international support.”
This year, one in four developing economies is expected to remain poorer than it was on the eve of the pandemic in 2019. This proportion is twice as high for countries in fragile- and conflict-affected situations. Moreover, the income gap between developing economies 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—an important indicator of living standards—is expected to grow by 3.0% on average through 2026, well below the average of 3.8% in the decade before COVID-19.
Global inflation is expected to moderate to 3.5% in 2024 and 2.9% in 2025, but the pace of decline is slower than was projected just six months ago. Many central banks, as a result, are expected to remain cautious in lowering policy interest rates. Global interest rates are likely to remain high by the standards of recent decades—averaging about 4% over 2025-26, roughly double the 2000-19 average.
“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. An environment of ‘higher-for-longer’ rates would mean tighter global financial conditions and much weaker growth in developing economies.”
The latest Global Economic Prospects report also features two analytical chapters of topical importance. The first outlines how public investment can be used to accelerate private investment and promote economic growth. It finds that public investment growth in developing economies has halved since the global financial crisis, dropping to an annual average of 5% in the past decade. Yet public investment can be a powerful policy lever. For developing economies with ample fiscal space and efficient government spending practices, scaling up public investment by 1% of GDP can increase the level of output by up to 1.6% over the medium term.
The second analytical chapter explores why small states—those with a population of around 1.5 million or less—suffer chronic fiscal difficulties. Two-fifths of the 35 developing economies that are small states are at high risk of debt distress or already in it. That’s roughly twice the share for other developing economies. Comprehensive reforms are needed to address the fiscal challenges of small states. Revenues could be drawn from a more stable and secure tax base. Spending efficiency could be improved —especially in health, education, and infrastructure. Fiscal frameworks could be adopted to manage the higher frequency of natural disasters and other shocks. Targeted and coordinated global policies can also help put these countries on a more sustainable fiscal path.
Regional Outlooks:
East Asia and Pacific: Growth is expected to decelerate to 4.8% in 2024 and to 4.2% in 2025. For more,
Europe and Central Asia: Growth is expected to edge down to 3.0% in 2024 before moderating to 2.9% in 2025.
Latin America and the Caribbean: Growth is expected to decline to 1.8% in 2024 before picking up to 2.7% in 2025.
Middle East and North Africa: Growth is expected to pick up to 2.8% in 2024 and 4.2% in 2025.
South Asia: Growth is expected to slow to 6.2% in 2024 and remain steady at 6.2% in 2025.
South Asia -Global Economic Prospects
June 2024
Recent developments: Growth in the South Asia (SAR) region is estimated to have increased to 6.6
percent in 2023, largely driven by faster growth in India. In early 2024, while private sector activity picked
up in several countries, including Pakistan and Sri Lanka, it remained weak. Industrial activity was disrupted in Bangladesh partly due to ongoing import restrictions.
In India, growth is estimated to have picked up in FY2023/24 (April 2023 to March 2024). Industrial activity, including manufacturing and construction, was stronger than expected, alongside resilient services activity,which helped offset a slowdown in agricultural production partly caused by monsoons.
In Bangladesh, growth is set to slow in FY2023/24 (July 2023 to June 2024). Elevated inflation has
dampened real wage growth and weighed on private consumption, and higher borrowing costs have
weighed on demand.
Although it remains subdued, activity in Pakistan has improved, as industrial production picked up in late
2023 to early 2024 after import controls were relaxed. In Sri Lanka, activity has strengthened, and tourism
and remittances have also recovered, though they have remained below pre-pandemic levels. Growth in
Bhutan and Nepal is also set to rise, partly reflecting recoveries in tourism and remittances.
Outlook: Growth in SAR is projected to slow to 6.2 percent in 2024 and stay at that rate over 2025-26,
mainly reflecting steady growth in India. The projections for 2024-25 are higher than expected in January,
primarily because of an upward revision in investment growth by 0.9 percentage point, on average, over
these two years. Growth in the region excluding India is expected to pick up to 3.9 percent in 2024 and to
4.4 percent in 2026.
In India, growth of 6.7 percent per year, on average, is projected for the three fiscal years beginning in
FY2024/25. Despite a moderation from a high base, investment growth is expected to be stronger than
previously envisaged and remain robust over the forecast period, with strong public investment anticipated to be accompanied by private investment.
In Bangladesh, growth is projected to increase slightly to 5.7 percent in FY2024/25 and 5.9 percent in
FY2025/26. In addition to an increase in private consumption because of easing inflation, the
implementation of large investment projects will support a pickup in overall investment. Growth is also
projected to rise in Bhutan and Nepal, partly reflecting strong output in the hydropower sector. Strengthened activity in Maldives will be supported by the expansion of an international airport in 2025.
Growth in Pakistan is expected to pick up to 2.3 percent in FY2024/25 (July 2024 to June 2025) and 2.7
percent in FY2025/26. It is expected that industrial activity and confidence will increase as a result of easing import restrictions and implementation of reform packages. In Sri Lanka, the economy is expected to expand by 2.2 percent in 2024 and then reach 3 percent in 2026, assuming successful debt restructuring negotiations and the implementation of structural reforms. In contrast, the economy of Afghanistan is set to remain fragile, with high unemployment, food insecurity, and poverty.
Risks: Downside risks to the baseline forecast include commodity price spikes resulting from supply
disruptions caused by the possible escalation of geopolitical tensions and intensification of armed conflicts.
In countries with elevated government indebtedness, abrupt fiscal consolidation could cause larger adverse effects on growth. Some countries also run the risk of financial instability because of the large holdings of sovereign debt by domestic banks. Climate-change-related natural disasters and weaker-than-projected growth in major trading partners are additional downside risks. Upside risks include stronger-than-expected growth in the United States and a faster-than-expected slowdown in global inflation that is not associated with weaker activity.
Sub-Saharan Africa: Growth is expected to pick up to 3.5% in 2024 and to 3.9% in 2025.
