WASHINGTON: The World Bank on Tuesday said the US economy’s stronger-than-expected performance has prompted it to lift its 2024 global growth outlook slightly but warned that overall output would remain well below pre-pandemic levels through 2026.
The World Bank said in its latest Global Economic Prospects report that the global economy would avoid a third consecutive drop in real GDP growth since a major post-pandemic jump in 2021, with 2024 growth stabilizing at 2.6%, unchanged from 2023.
That’s up 0.2 percentage point from the World Bank’s January forecast, largely on the strength of US demand.
“In a sense, we see the runway for a soft landing,” World Bank Deputy Chief Economist Ayhan Kose told Reuters in an interview, noting that sharply higher interest rates have brought down inflation without major job losses and other disruptions in the US or other major economies.
“That’s the good news. What is not good news is that we may be stuck in the slow lane,” Kose added.
The World Bank forecast global growth of 2.7% in both 2025 and 2026, a level well below the 3.1% global average in the decade prior to COVID-19. It also is forecasting that interest rates in the next three years will remain double their 2000-2019 average, keeping a brake on growth and adding debt pressure to emerging market countries that have borrowed in dollars.
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Countries representing 80% of the world’s population and GDP output will see weaker growth through 2026 than they had prior to the pandemic, the report said.
“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,” said World Bank Chief Economist Indermit Gill, adding that those countries will continue to require international assistance to fund their needs.
The report contains an alternative “higher-for-longer” interest rate scenario, in which persistent inflation in advanced economies keeps interest rates about 40 basis points above the lender’s baseline forecast, cutting 2025 global growth to 2.4%.
US buoyant
Strong demand and higher inflation readings in the US have delayed expectations for Federal Reserve rate cuts, and the US economy is defying predictions of a downturn for the second year in a row, according to the report. The World Bank is now forecasting 2.5% US growth for 2024 – matching the 2023 pace – and up sharply from the January forecast of 1.6%.
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