The World Bank on Tuesday raised its outlook for the world economy this year but warned that the rise of new trade barriers and protectionist policies posed a long-term threat to global growth.
In its latest Global Economic Prospects report, the World Bank predicts that global economic growth will stabilize at 2.6% this year, higher than its January Forecast The Fed expects GDP to rise slightly to 2.7% in 2025 and 2.4% in 2025. The forecast shows that the global economy is stabilizing after being hit by the coronavirus pandemic and the wars in Ukraine and the Middle East in recent years.
“After four turbulent years driven by the pandemic, conflict, inflation, and monetary tightening, global growth appears to be stabilizing,” World Bank Chief Economist Indmit Gill said in a statement accompanying the report.
However, weak growth still plagues the world’s poorest economies, which are still struggling with inflation and high debt burdens. The World Bank noted that over the next three years, countries accounting for more than 80% of the world’s population will experience slower growth than in the decade before the pandemic.
The slightly more optimistic forecast stems mainly from the resilience of the US economy, which has exceeded expectations despite rising interest rates. Overall, advanced economies grew at an annual rate of 1.5%, with output in Europe and Japan remaining sluggish. In contrast, emerging market and developing economies grew at a rate of 4%, with China and Indonesia leading the way.
While economic growth is expected to be slightly higher than previously forecast, the World Bank said prices were rising at a slower pace than it had forecast six months ago. The World Bank expects global inflation to fall to 3.5% in 2024 and to 2.9% next year. A gradual decline in inflation could cause central banks to hold off on cutting interest rates, dimming growth prospects for developing economies.
Despite the improved outlook, the global economy still faces huge uncertainties from Russia’s war in Ukraine and the potential for the war between Israel and Hamas in Gaza to turn into a large-scale regional conflict.
Trade tensions are also rising between the world’s two largest economies, the United States and China, threatening to make international trade more unstable. The Biden administration last month imposed sweeping new tariffs on Chinese electric vehicles and maintained tariffs imposed by the Trump administration on Chinese imports. The European Union is also considering new taxes on Chinese green energy technology as concerns grow about China’s industrial overcapacity.
The World Bank noted that “trade distorting policies” such as tariffs and subsidies have increased dramatically since the outbreak of the epidemic. The bank warned that such measures often distort supply chains and cause trade to be diverted to other countries to evade import tariffs, making supply chains less efficient.
“A further spread of trade restrictions poses a significant downside risk to the global growth outlook,” the report said. “Increased trade policy uncertainty and a further weakening of the multilateral trading system – both of which could result from an escalation in trade restrictive measures – could weigh on growth.”
