For the first time in three years in 2024, the global economy is showing signs of stabilisation, according to the World Bank's latest Global Economic Prospects report. However, this stabilisation remains at a weak level compared to historical standards.
The report projects global growth to hold steady at 2.6% in 2024, with a slight increase to an average of 2.7% in 2025-26. These figures are significantly below the 3.1% average growth rate seen in the decade before the COVID-19 pandemic.
The forecast indicates that over the next three years, countries representing more than 80% of the world’s population and global GDP will experience slower growth than in the pre-pandemic decade.
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Economic outlook for developing and advanced economies
Developing economies are expected to grow by an average of 4% over 2024-25, slightly slower than the 2023 rate. Low-income economies may see a growth acceleration to 5% in 2024 from 3.8% in 2023.
Despite this, three out of every four low-income economies have seen downgraded growth forecasts since January. Advanced economies are projected to maintain steady growth at 1.5% in 2024, with a slight increase 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."
Challenges and disparities
The report highlights that one in four developing economies is expected to remain poorer than pre-pandemic levels of 2019. This proportion doubles for countries in fragile and conflict-affected situations.
Additionally, nearly half of the developing economies will see the income gap with advanced economies widen over 2020-24, the highest proportion since the 1990s. Per capita income in these economies is expected to grow by 3% on average through 2026, significantly below the 3.8% average in the decade before the pandemic.
Global inflation is anticipated to moderate to 3.5% in 2024 and 2.9% in 2025, but the decline is slower than previously projected. Consequently, central banks are likely to maintain cautious approaches to lowering policy interest rates, with global interest rates expected to average at about 4% over 2025-26 — double the average of the 2000-19 period.
"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," he said.
Focus on public investment and small states
The Global Economic Prospects report includes two analytical chapters of significant importance. The first chapter emphasises how public investment can stimulate private investment and promote economic growth. It notes 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.
For developing economies with sufficient fiscal space and efficient government spending, increasing public investment by 1% of GDP could boost output by up to 1.6% over the medium term.
The second chapter addresses the fiscal challenges faced by small states — those with populations of around 1.5 million or less. Approximately 40% of these 35 developing economies are at high risk of debt distress or already in it, which is double the rate of other developing economies.
The report calls for comprehensive reforms to stabilise the fiscal situation of small states, including enhancing revenue stability, improving spending efficiency, and adopting fiscal frameworks to manage frequent natural disasters and other shocks. Coordinated global policies are crucial to support these countries on a sustainable fiscal path, the report said.
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