The World Bank predicts that the global economy is heading towards its weakest growth in three decades. According to the latest Global Economic Prospects report, global growth is anticipated to slow for the third consecutive year in 2024, dropping from 2.6% in 2023 to 2.4%.
Despite a marginal increase to 2.7% in 2025, the overall growth during this five-year period is projected to remain nearly three-quarters of a percentage point below the average rate seen in the 2010s.
While the global economy demonstrated resilience against recessionary risks in 2023, the World Bank notes that heightened geopolitical tensions will introduce new challenges in the near term.
Consequently, the organisation anticipates that the majority of economies will experience slower growth in 2024 and 2025 compared to the previous decade.
The impact of war in Eastern Europe
Ayhan Kose, the World Bank’s deputy chief economist and director of the Prospects Group, has expressed concerns about the global geopolitical landscape, citing the war in Eastern Europe with the Russian invasion of Ukraine and serious conflicts in the Middle East.
Kose emphasised that the escalation of these conflicts could carry significant implications for energy prices, subsequently impacting both inflation and economic growth. The World Bank has issued a warning, stating that without a "major course correction," the 2020s could be remembered as "a decade of wasted opportunity."
Looking at regions, the World Bank anticipates a decline in growth for North America, Europe, Central Asia, and the Asia-Pacific in the current year. This is primarily attributed to a deceleration in expansion within China. Latin America and the Caribbean, starting from a lower point, are expected to show a slight improvement. Meanwhile, more substantial increases in growth are predicted for the Middle East and Africa.
Challenging times ahead for developing economies
Despite some regions experiencing growth, developing economies are expected to bear the brunt of challenges in the medium term. The combination of sluggish global trade and tight financial conditions will exert significant pressure on their growth.
The World Bank warns that near-term growth will persistently be weak, trapping many developing countries—especially the poorest—in a cycle of high debt and precarious access to food, affecting nearly one-third of their populations.
Projections indicate that developing economies are slated to achieve a growth rate of just 3.9% in 2024, over 1 percentage point below the previous decade's average. Shockingly, by the year-end, individuals in approximately one-fourth of developing nations and 40% of low-income countries are expected to remain poorer than they were on the eve of the Covid-19 pandemic in 2019, as per the organisation's assessment.
The 2020s not going to be a transformative decade
The World Bank's data highlights a stark reality: the world is falling short of its ambition to make the 2020s a transformative decade in addressing extreme poverty, major communicable diseases, and climate change.
Despite this, the bank underscores the potential for a positive shift if governments act swiftly to boost investment and fortify fiscal policy frameworks.
"Investment booms have the potential to transform developing economies and accelerate the energy transition, aiding in the achievement of various development goals," stated Kose in the report.
"To ignite these booms, developing economies must adopt comprehensive policy packages. This includes enhancing fiscal and monetary frameworks, fostering cross-border trade and financial flows, enhancing the investment climate, and fortifying institutional quality," remarked Kose.
He also acknowledged that it is a challenging task, but emphasises that numerous developing economies have successfully undertaken such measures in the past. Undertaking these efforts once again, he believes, will be instrumental in mitigating the anticipated slowdown in potential growth throughout the remainder of this decade.
Where does India stand?
India is projected to maintain its position as the fastest-growing major economy. The report anticipates a growth rate of 6.4% in FY25, with a further acceleration to 6.5% in FY26 despite an overall economic slowdown.
The World Bank attributes this resilience to a marginal deceleration in investment, which is expected to remain robust. The support is attributed to increased public investment and enhanced corporate balance sheets, including improvements in the banking sector.
In a significant development seen as a boost for Prime Minister Narendra Modi ahead of the impending general elections scheduled before May, India has forecasted an annual growth of 7.3% in the fiscal year ending in March, reported Business Today.
This rate is the highest among major global economies. The National Statistical Office (NSO) released these early projections for 2023/24, emphasising that subsequent revisions may occur based on improved data coverage, actual tax receipts, and state subsidies expenditure.
On the other hand, the World Bank estimates India's growth for this fiscal year to be 6.3%. Additionally, the World Bank anticipates a further slowdown in global growth to 2.4% in 2024 from the projected 2.6% for 2023, marking the weakest performance in half a decade over the past 30 years.
The bank cautioned that unless there is a "significant course correction," the 2020s may be remembered as a "decade of missed opportunities." Regarding private consumption in the upcoming fiscal year, the World Bank suggested it is likely to decrease.
"As pent-up demand post-pandemic diminishes and persistent high food price inflation hampers spending, especially among low-income households." Expressing concern, the institution highlighted interest payments.
"In India, government revenues are expected to benefit from robust corporate profits, while current expenditures are likely to decrease as pandemic-related measures conclude. However, interest payments could pose a challenge in countries with high debt levels, including India, Pakistan, and Sri Lanka."
The bank also raised flags about risks related to extreme weather events and elections. "Heightened uncertainty surrounding these elections may dampen private sector activity, including foreign investment," noting that implementing policies to reduce uncertainty and enhance growth potential post-elections could improve growth prospects.