The global economy faces the risk of enduring a “wasted” decade, with the weakest stretch of growth in 30 years, according to a stark warning from the World Bank in its semiannual Global Economic Prospects report released on Tuesday. The report highlights that the sluggish recovery from the pandemic, coupled with ongoing conflicts in Ukraine and the Middle East, are expected to exert significant pressure on global output.
Projections in the report indicate a further slowdown in world output growth to 2.4 percent in 2024, down from 2.6 percent. Despite the unexpected resilience of the global economy, uncertainties have heightened due to the impact of the wars, a diminished Chinese economy, and the increasing risks associated with natural disasters linked to global warming.
The convergence of these crises positions the world economy on a trajectory toward the weakest half-decade in three decades. Indermit Gill, the World Bank Group’s chief economist, remarked, “Without a major course correction, the 2020s will go down as a decade of wasted opportunity.”
Developing countries bear the brunt of the economic slowdown, grappling with high borrowing costs and sluggish trade volumes. While policymakers have made progress in curbing inflation from its 2022 peak, the conflict in the Middle East and escalating geopolitical risks pose potential threats by triggering spikes in oil and food prices.
The report specifically notes the recent conflict in the Middle East, combined with Russia’s invasion of Ukraine, as contributing to heightened geopolitical risks. The escalation of conflicts could lead to a surge in energy prices, with broader implications for global economic activity and inflation.
Recent drone and missile attacks in the Red Sea by the Iranian-backed Houthi militia have already impacted international commerce, raising oil prices and influencing freight and insurance rates. The re-routing of maritime traffic around Africa due to these disruptions adds further costs.
Economists caution that although the redirection of trade ships may not lead to a resurgence of global inflation, a broader regional conflict could pose inflationary risks. The shipping route disturbances follow a year where, excluding global recessions, global trade growth saw its slowest pace in the past 50 years.
Despite the expectation of a global oil price decline if the Middle East conflict does not widen, the World Bank underscores ongoing concerns about the fragility of the Chinese economy. Lingering weakness in China’s property sector and subdued consumer spending contribute to a projection of continued underperformance in the world’s second-largest economy.
China’s growth is anticipated to slow to 4.5 percent in 2024, marking its slowest expansion in 30 years, excluding the pandemic-induced downturn. In Europe and the United States, both regions are poised for another year of weak output in 2024.
The Eurozone’s economic growth is projected to rise modestly to 0.7 percent in 2024 from 0.4 percent in 2023. Tight credit conditions are expected to constrain economic activity despite easing inflation and rising wages.
In the United States, growth is anticipated to slow to 1.6 percent in 2024 from 2.5 percent in 2023. Factors contributing to the slowdown include elevated interest rates, the highest in 22 years, a pullback in government spending, and business caution due to economic and political uncertainties, including the 2024 election.
While the global economic outlook remains challenging, officials from the Biden administration assert that significant progress has been made in curbing inflation while sustaining a strong labor market. Treasury Secretary Janet L. Yellen highlighted the unusual scenario of declining inflation alongside a robust labor market, characterizing the current situation as a “soft landing.”