The World Bank warns of a rise in energy prices as the war in the Middle East spreads
The global economy is at risk of a “wasted” decade and the weakest growth trajectory in three decades, the World Bank warned on Tuesday. A slow recovery from the pandemic and crippling wars in Ukraine and the Middle East are expected to weigh heavily. on export.
In its biannual Global Economic Prospects report, the World Bank forecast that global output growth will slow further in 2024, from 2.6 percent to 2.4 percent. Although the global economy has been surprisingly resilient, the report warned that forecasts were subject to increased uncertainty due to the two wars, a weakened Chinese economy and increasing risks of natural disasters due to global warming.
The converging crises of recent years have put the global economy on track for the weakest half-decade in three decades.
“Without a major course correction, the 2020s will go down as a decade of missed opportunities,” said Indermit Gill, chief economist at the World Bank.
Global growth is expected to slow for the third year in a row in 2024. Developing countries are hardest hit by the slowdown, with high financing costs and weak trade volumes weighing on their economies.
Although policymakers have made progress in reducing inflation 2022 highthe war in Gaza between Israel and Hamas threatens to become a broader conflict that could trigger a new bout of price increases due to the costs of oil and food are rising.
“The recent conflict in the Middle East, coming on top of the Russian Federation’s invasion of Ukraine, has increased geopolitical risks,” the report said. “Escalation of conflict could lead to rising energy prices, with broader implications for global activity and inflation.”
Signs of fragility in the Chinese economy also remain worrying. World Bank economists pointed to continued weakness in China’s real estate sector and subdued consumer spending as evidence that the world’s second-largest economy will continue to underperform this year. They suggested this could create headwinds for some Chinese trading partners in Asia.
Chinese growth is expected to slow from 5.2 percent in 2023 to 4.5 percent this year. Excluding the pandemic-induced downturn, that would be China’s slowest growth in three decades.
Europe and the United States are also set for another year of weak production in 2024.
The World Bank predicts that economic growth in the eurozone will increase from 0.4 percent in 2023 to 0.7 percent in 2024. Despite declining inflation and rising wages, tight credit conditions are expected to limit economic activity.
Growth in the United States is expected to slow from 2.5 percent in 2023 to 1.6 percent this year. The World Bank attributes the slowdown to higher interest rates – which are at a 22-year high – and a slump in government spending. Companies are expected to be cautious in investing due to economic and political uncertainty, including around the 2024 elections.
Despite this sluggish growth, Biden administration officials say they deserve credit for reining in inflation and keeping the economy afloat.
“I think we’ve made tremendous progress,” Treasury Secretary Janet L. Yellen told reporters on Monday. “It is very unusual to have a period where inflation falls so sharply while the labor market remains strong.”
She added: “But that’s what we’re seeing, and that’s why I say we’re enjoying a soft landing.”