World Bank sees brighter growth outlook

The World Bank on Tuesday raised its forecast for the global economy this year, but warned that the rise of new trade barriers and protectionist measures pose a threat to long-term global growth.

In its latest Global Economic Prospects report, the World Bank forecast global growth would remain steady at 2.6 percent this year, up from January’s forecast of 2.4 percent, and predicted output would rise to 2.7 percent in 2025. The global economy is stabilizing after being rocked in recent years by the pandemic and wars in Ukraine and the Middle East.

“Four years after the upheavals caused by the pandemic, conflict, inflation and monetary tightening, global economic growth appears to be stabilizing,” World Bank Chief Economist Indermit Gill said in a statement accompanying the report.

But slow growth continues to haunt the world’s poorest economies, which continue to struggle with inflation and the burden of high debt. The bank noted that countries representing more than 80 percent of the world’s population will experience slower growth over the next three years than in the decade before the pandemic.

The slightly more positive forecast was led 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, while manufacturing in Europe and Japan remains sluggish. In contrast, emerging markets and developing countries are growing by 4 percent, led by China and Indonesia.

While growth is expected to be slightly stronger than previously forecast, the World Bank said prices fell more slowly than forecast six months ago. The bank predicts that global inflation will decline to 3.5 percent in 2024 and to 2.9 percent next year. That gradual decline is likely to lead central banks to delay interest rate cuts, dimming the prospects for growth in developing countries.

Despite the improved outlook, the global economy continues to face major uncertainty due to Russia’s war in Ukraine and the possibility that the war between Israel and Hamas in Gaza could turn into a widespread regional conflict.

Trade tensions between the world’s two largest economies — the United States and China — are also rising, potentially making international trade more volatile. The Biden administration last month imposed sweeping new tariffs on Chinese electric vehicles, keeping in place tariffs on Chinese imports imposed by the Trump administration. The European Union is also considering new levies on Chinese green energy technology amid growing concerns about the country’s excess industrial capacity.

The World Bank noted that “trade-distorting policies” such as tariffs and subsidies had increased sharply since the pandemic. It warned that such measures could disrupt supply chains, making them less efficient as trade is diverted to other countries to avoid tariffs.

“A further increase in trade restrictions poses a substantial downside risk to global growth prospects,” the report said. “Increased trade policy uncertainty and a further weakening of the multilateral trading system – both of which could result from escalating trade restrictive measures – could have negative consequences for growth.”