The World Bank on Tuesday raised its outlook for the global economy this year, but warned that rising new trade barriers and protectionist policies posed a long-term threat to global growth.
In its latest Global Economic Prospects report, the World Bank projected that global growth would hold steady at 2.6 percent this year, an improvement from its January forecast of 2.4 percent, and predicted that output would rise to 2.7 percent in 2025. Forecasts showed that The global economy is stabilizing after being shaken in recent years by the pandemic and wars in Ukraine and the Middle East.
“Four years after the disruptions caused by the pandemic, conflict, inflation and monetary tightening, global economic growth appears to be stabilizing,” said Indermit Gill, chief economist at the World Bank, in a statement accompanying to the report.
However, slow growth continues to plague the world’s poorest economies, which are still struggling with inflation and high debt burdens. The bank noted that over the next three years, countries representing more than 80 percent of the world’s population would experience slower growth than in the decade before the pandemic.
The slightly better forecast was driven by the resilience of the US economy, which continues to defy expectations despite higher interest rates. Overall, advanced economies are growing at an annual rate of 1.5 percent, and production remains weak in Europe and Japan. By contrast, emerging market and developing economies are growing at a rate of 4 percent, led by China and Indonesia.
Although growth is expected to be slightly stronger than previously forecast, the World Bank said prices were falling more slowly than it projected six months ago. It forecasts headline inflation to moderate to 3.5 percent in 2024 and 2.9 percent next year. That gradual decline is likely to lead central banks to delay interest rate cuts, dimming growth prospects in developing economies.
Despite the improving outlook, the global economy continues to face significant uncertainty due to Russia’s war in Ukraine and the possibility that the war between Israel and Hamas in Gaza could escalate into a broad regional conflict.
Trade tensions between the world’s two largest economies (the United States and China) are also escalating and could make international trade more volatile. Last month, the Biden administration imposed sweeping new tariffs on Chinese electric vehicles and maintained tariffs on Chinese imports that the Trump administration had imposed. The European Union is also considering new taxes on Chinese green energy technology as concerns grow over the country’s industrial overcapacity.
The World Bank noted that “trade-distorting policies” such as tariffs and subsidies had increased dramatically since the pandemic. It warned that such measures tended to distort supply chains, making them less efficient as trade was diverted to other countries to avoid import duties.
“Further proliferation of trade restrictions presents a substantial downside risk to global growth prospects,” the report says. “Increased trade policy uncertainty and a further weakening of the multilateral trading system – both factors that may result from an escalation of trade restrictive measures – could have adverse effects on growth.”