World Bank Warns of Wasted Opportunity

In its latest “Global Economic Prospects” report issued last week, the World Bank warned that the global economy is on course to record the worst half decade of growth in the last 30 years. The Bank is forecasting that global growth this year will continue to slow, dipping to 2.4%, from the 2.6% expansion in 2023. Although growth is then expected to rise marginally to 2.7% in 2025, growth over a five-year period will remain almost three-quarters of a percentage point below the average rate of the 2010s. 

The organisation said that despite the global economy “proving resilient in the face of recessionary risks in 2023”, increased geopolitical tensions will present fresh near-term challenges. This suggests that most economies are set to grow more slowly in 2024 and 2025 than they did in the previous decade.

In a statement accompanying the release, the World Bank’s deputy chief economist and director of the Prospects Group, Ayhan Kose, said: “You have a war in Eastern Europe, the Russian invasion of Ukraine. You have a serious conflict in the Middle East. Escalation of these conflicts could have significant implications for energy prices that could have impacts on inflation as well as on economic growth”. He went on to say that without a “major course correction” the 2020s will go down as “a decade of wasted opportunity”.  

Regional growth is expected to decline the most in North America, Europe, Central Asia, and Asia-Pacific, primarily due to the slowdown in China. Latin America and the Caribbean are expected to experience a slight improvement, albeit from a low starting point. However, the bigger economies in the Middle East and Africa are expected to show healthy growth.  

Growth of developing economies is anticipated to be a meagre 3.9%, a decline of over 1% compared to the average of the previous decade. By the year-end, approximately one in four developing nations and around 40% of low-income countries are projected to have a lower economic status than they did on the brink of the Covid-19 pandemic in 2019, according to the organisation.   

Kose said: “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”. However, “To spark such booms, developing economies need to implement comprehensive policy packages to improve fiscal and monetary frameworks, expand cross-border trade and financial flows, improve the investment climate, and strengthen the quality of institutions. It’s hard work, but many developing economies have been able to do it before. Doing it again will help mitigate the projected slowdown in potential growth in the rest of this decade”.