In 2024, the global economy is expected to face its slowest growth since the onset of the pandemic in 2020, according to projections by the World Bank. The forecast indicates a potential growth rate of 2.4 percent, a figure influenced by the impact of elevated policy interest rates. The World Bank identifies ongoing crises in Ukraine and the Middle East as significant hurdles to global economic growth. The severity of these challenges is anticipated to result in a growth rate of 2.4 percent for the year, marking the lowest since the 2008 financial crisis, excluding the downturn experienced in 2020.
Surprisingly, there might be a slight silver lining amid the economic challenges. Growth, potentially reaching 2.6 percent, is hinted at, attributed to the better-than-expected performance of the United States in the previous year. Indrameet Gill, the Chief Economist of the World Bank Group, shared insights with the BBC, emphasizing that in the short term, growth rates are likely to decelerate, posing challenges for numerous poor countries, including the world's most impoverished nations. He highlighted the current state of global growth, describing it as historically moderate. Additionally, he pointed out a decline in the growth of world trade, adding another layer of complexity to the economic landscape.
According to the semiannual report of the World Bank, geopolitical tensions have increased due to the Israel-Hamas crisis. It also said that attacks by Yemen's Houthi rebels on Red Sea waterways will increase shipping costs, leading to higher inflation.
Meanwhile, the US Secretary of State Anthony Blinken, who is visiting the Middle East, has raised the fear of inflation. He wrote on the social media X that 20 percent of the ships are moving due to the attacks of the Houthi rebels. This has increased the cost of transporting food, fuel, medicine and humanitarian aid.
The crisis emerged just as central banks worldwide believed they had inflation under control. In the United States, the United Kingdom, and the Eurozone, inflation rates have approached their 2 percent target, thanks to consecutive years of rising policy interest rates. As a consequence, there is optimism in the market that interest rates will be reduced this year. The elevated interest rates in the major economies worldwide have led to an increase in borrowing costs for poorer nations. The World Bank is expressing particular concern about the predicament faced by the world's 75 poorest countries. According to the World Bank, in this current scenario, developed nations are better equipped to navigate the repercussions of the pandemic compared to their less affluent counterparts.
Indrameet Gill expressed, "We estimate that by the end of 2024, the per capita income of people in developed countries will exceed the pre-Covid levels. However, at the same time, per capita income in developing countries is anticipated to decline to 75 percent of pre-Covid levels, and in the poorest nations, it is expected to drop even further to 66 percent."
Food prices are emerging as a specific worry for the world's most impoverished individuals. In 2023, rice prices surged by 27 percent as India implemented restrictions on rice exports. Nevertheless, overall food prices are projected to decrease by 1 percent in 2024 due to the abundant availability of other food grains. Another issue of concern is the diminishing consumer spending enthusiasm in China, the world's second-largest economy. This trend is contributing to the decline in commodity prices within the country. The World Bank anticipates that China's growth will reach 4.5 percent in 2024, despite the substantial debt burden on the country's housing sector.
China perceives its growth rate as inadequate, falling below the 5 percent target set for 2023. The dwindling investment from foreign companies in China is a contributing factor, but the consequences extend beyond that. The country's aging population is expanding, and it struggles to maintain the development pace achieved over the past two decades. This deceleration in China's growth has repercussions for other developing nations, particularly those closely tied as major trading partners, as highlighted by Indermeet Gill. On a global scale, the World Bank anticipates that the period from 2020 to 2024 will experience the slowest half-decade growth in the last 30 years. Despite these challenges, there is room for optimism. The World Bank suggests that if the government can foster investment in the private sector, it will provide a significant boost to growth. However, addressing challenges such as shifts in the energy sector and grappling with the impact of climate change is imperative.