The latest edition of the World Bank’s ‘Global Economic Prospects’ report projects global growth to slow for the third year in a row and remain below the average of the 2010s. The report finds developing countries will need to see a USD 2.4 trillion annual increase in investments to tackle climate change, foster the energy transition, and alleviate food insecurity by 2030.
Although the risk of a global recession has receded, sluggish growth reflects “tight monetary policies to rein in decades-high inflation, restrictive credit conditions, and anemic global trade and investment,” according to the report. Global growth is projected to slow from 2.6% in 2023 to 2.4% in 2024. Growth in advanced economies is set to slow to 1.2% in 2024, compared to 1.5% last year. At 3.9%, developing economies’ projected growth is more than one percentage point below the average of the previous decade. The report warns that by the end of 2024, “people in about one out of every four developing countries and about 40% of low-income countries” (LICs) will be poorer than they were before the COVID-19 pandemic in 2019.
Elevated debt and financing costs further darken the prospects for vulnerable emerging market and developing economies (EMDEs). Geopolitical conflicts, financial stress related to elevated real interest rates, persistent inflation, weaker-than-expected growth in China, further trade fragmentation, and climate change-related disasters are among the risks highlighted in the report.
The report underscores that without the necessary policy action, investment growth in EMDEs will remain tepid for the rest of the decade. It offers a deep dive in “investment accelerations.” Over the past seven decades, analysis shows, investment growth during such episodes typically rose to more than 10% percent per year. This is more than three times the growth rate in non-acceleration years. The report notes that during investment accelerations, output growth jumped about two percentage points, and productivity growth increased by 1.3 percentage points per year. Other benefits included decreased inflation, improved fiscal and external balances, and declined national poverty rates.
“Investment booms have the potential to transform developing economies and help them speed up the energy transition and achieve a wide variety of development objectives,” said Ayhan Kose, the World Bank’s Deputy Chief Economist and Director of the Prospects Group.
The report shows that most periods of investment acceleration followed policy shifts to improve macroeconomic stability and structural reforms. It also finds that well-functioning institutions played an important role in sparking investment accelerations.
In commodity exporting EMDEs, fiscal policy has been about 30% more procyclical and about 40% more volatile, according to the report, hurting economic growth because both fiscal and procyclical volatility amplify business cycles. To address these volatilities, the report recommends structural policies, including exchange rate flexibility and the easing of restrictions on international financial transactions. “By adopting average advanced-economy policies regarding exchange rate regimes, restrictions on cross-border financial flows, and the use of fiscal rules, commodity-exporting EMDEs can increase their GDP per capita growth by about 1 percentage point every four to five years through the reduction in fiscal policy volatility,” the report states. Sustainable, well-designed, and stability-oriented fiscal institutions should support such policies, along with a strong commitment to fiscal discipline.
Issued twice a year, in January and June, Global Economic Prospects is a flagship report of the World Bank Group. It examines global economic developments and prospects and has a special focus on EMDEs. The January 2024 edition was published on 9 January. [Publication: Global Economic Prospects, January 2024] [Executive Summary] [Publication Landing Page] [World Bank Press Release] [UN News Story] [SDG Knowledge Hub Story on DESA’s World Economic Situation and Prospects 2024]