Growth will slow to 2.4% in 2024 - the global economy is experiencing five weak years

The World Bank released the latest "Global Economic Prospects" report on January 9, local time. It is expected that global economic growth will slow down for the third consecutive year in 2024, falling to 2.4%, lower than 2.6% in 2023, and 2.6% in 2023. The forecast in June this year was unchanged; it rose to 2.7% in 2025, 0.3 percentage points lower than the previous forecast. The World Bank predicts that the global economy will grow by 2.2% from 2020 to 2024, the weakest five-year growth rate since the early 1990s.

Growth will remain weak in the near term

The report pointed out that despite a series of shocks in the past four years, the global economy has shown unexpected resilience. The fastest rise in interest rates in major economies in 40 years was without the usual sharp rise in unemployment or collapse of the financial system. Global inflation is under control and the world economy is not in recession. However, the outlook for the next two years is not optimistic. The end of 2024 will mark the midpoint of a development decade that was originally expected to be transformational - extreme poverty will be eradicated, major infectious diseases will be eradicated, and greenhouse gas emissions will be reduced by nearly half. But the reality is different. Satisfactory.

Major international institutions are not optimistic about world economic growth in 2024. The "World Economic Situation and Prospects 2024" released by the United Nations earlier this month predicts that world economic growth will drop from 2.7% in 2023 to 2.4% in 2024. The World Bank report shows that increasing geopolitical tensions may bring new short-term risks to the world economy. At the same time, the medium-term outlook for many developing economies has dimmed amid slowing growth in most major economies, sluggish global trade and some of the tightest financial conditions in decades. Global trade growth in 2024 is expected to be only half of the average level in the 10 years before the COVID-19 pandemic. And borrowing costs for developing economies, especially those with poor credit ratings, are likely to remain high as inflation-adjusted global interest rates remain at 40-year highs.

Specifically, the report predicts that the economic growth of developed economies will slow down from 1.5% in 2023 to 1.2% this year. Developing economies are expected to grow by only 3.9% this year. Low-income countries are expected to grow by 5.5% this year, which is weaker than before. expected. The report predicts that by the end of 2024, about 25% of the population in developing countries and about 40% of the population in low-income countries will still be poorer than before the COVID-19 outbreak.

The report predicts that China’s economic growth will drop to 4.5% in 2024 and further to 4.3% in 2025. Compared with the forecast in June 2023, the growth rates in 2024 and 2025 have been reduced by 0.1 percentage points, mainly due to weakening domestic demand. During the forecast period, structural headwinds such as rising debt, an aging and shrinking labor force, and narrowing space for productivity catch-up growth are expected to put pressure on economic activity.

Indermit Gill, Chief Economist and Senior Vice President of the World Bank Group, said: “Growth will remain weak in the near term, leaving many developing countries, especially the poorest, in dire straits with mountainous debt burdens, with nearly one-third of the population are food insecure. This will hinder progress on many global priorities. Without significant adjustments, the 2020s will be a decade of missed opportunities."

Need to stimulate a new round of investment boom

Faced with bleak growth prospects, the report also gives suggestions that may turn the situation around. The report believes that stimulating a new round of investment boom is one of the important measures, because the investment boom has a "magic" that can promote economic growth, reduce poverty, and help emerging markets and developing economies cope with climate change and achieve other key development goals. indispensable.

The report emphasizes that to achieve key global development goals by 2030, developing economies will need to significantly increase investment, which will require approximately US$2.4 trillion per year. Without further policy action, investment growth in emerging market and developing economies is likely to remain slow for the remainder of the 2020s, with per capita investment growth in developing economies expected to be only 3.7% in 2023-2024. .

Based on the experience of 35 developed economies and 69 developing economies over the past 70 years, the report analyzes the conditions that generate a sustained investment boom. The report found that if the per capita investment growth rate of developing economies increases to 4% and continues for 6 years or more, additional economic benefits will be obtained: the pace of integration with the income level of developed economies will be accelerated, the poverty rate will decline more rapidly, Productivity growth quadrupled. Other benefits can be reaped during the investment boom, including falling inflation, improved fiscal and external balances, and rapid increases in people's access to the Internet.

Ayhan Goss, Deputy Chief Economist and Director of the Forecasting Bureau of the World Bank, said: "The investment boom can help developing economies accelerate energy transformation and achieve broad development goals. To trigger an investment boom, developing economies need to introduce comprehensive policies. We will implement a comprehensive policy mix, improve fiscal and monetary frameworks, expand cross-border trade and capital flows, optimize the investment environment, and improve institutional systems."

The report proposes that if every developing economy that succeeded in the investment boom in the first 20 years of this century could replicate its previous achievements, the development prospects of developing economies would be significantly improved. If all developing economies could repeat their best 10-year performance in improving health, education, and labor force participation, they would close much of the gap, that is, developing economies' potential growth rates in the 2020s would be as high as It was similar in the previous 10 years. The 2020s have so far been a period of unfulfilled promises, but if governments in emerging market and developing economies act now, there is plenty of time to regain some of the lost ground.

The report also talks about measures that two-thirds of developing countries, especially commodity exporters, can take to avoid boom and bust cycles. The report found that governments in these countries often adopted fiscal policies that exacerbated booms and busts. For example, if rising commodity prices increase economic growth by 1 percentage point, increased government spending will increase growth by an additional 0.2 percentage points. Generally speaking, when the economic situation is good, fiscal policy tends to overheat the economy; when the economic situation is bad, fiscal policy aggravates the economic downturn. Compared with other developing economies, developing economies that export commodities are 30% more "procyclical" and have 40% more fiscal policy volatility.

The instability caused by greater procyclicality and volatility in fiscal policy has long been a drag on the growth prospects of commodity exporters in developing economies. But this drag can be mitigated through policies, including establishing a fiscal framework that helps moderate government spending, adopting a flexible exchange rate regime, and avoiding restrictions on international capital flows. On average, these policy measures can help commodity-exporting countries increase per capita GDP growth by 1 percentage point every four to five years. It is also beneficial for countries to establish sovereign wealth funds and other emergency funds to prepare for emergencies.