THE GLOBAL OUTLOOK

Global Growth Is Stabilizing for the First Time in Three Years

But 80% of world population will experience slower growth than in pre-COVID decade

WASHINGTON, June 11, 2024—The global economy is expected to stabilize for the first time in three years in 2024—but at a level that is weak by recent historical standards, according to the World Bank’s latest Global Economic Prospects report. 

Global growth is projected to hold steady at 2.6% in 2024 before edging up to an average of 2.7% in 2025-26. That is well below the 3.1% average in the decade before COVID-19. The forecast implies that over the course of 2024-26 countries that collectively account for more than 80% of the world’s population and global GDP would still be growing more slowly than they did in the decade before COVID-19.

Overall, developing economies are projected to grow 4% on average over 2024-25, slightly slower than in 2023. Growth in low-income economies is expected to accelerate to 5% in 2024 from 3.8% in 2023. However, the forecasts for 2024 growth reflect downgrades in three out of every four low-income economies since January. In advanced economies, growth is set to remain steady at 1.5% in 2024 before rising to 1.7% in 2025. 

“Four years after the upheavals caused by the pandemic, conflicts, inflation, and monetary tightening, it appears that global economic growth is steadying,” said Indermit Gill, the World Bank Group’s Chief Economist and Senior Vice President. “However, growth is at lower levels than before 2020. Prospects for the world’s poorest economies are even more worrisome. They face punishing levels of debt service, constricting trade possibilities, and costly climate events. Developing economies will have to find ways to encourage private investment, reduce public debt, and improve education, health, and basic infrastructure. The poorest among them—especially the 75 countries eligible for concessional assistance from the International Development Association—will not be able to do this without international support.”

This year, one in four developing economies is expected to remain poorer than it was on the eve of the pandemic in 2019. This proportion is twice as high for countries in fragile- and conflict-affected situations. Moreover, the income gap between developing economies and advanced economies is set to widen in nearly half of developing economies over 2020-24—the highest share since the 1990s. Per capita income in these economies—an important indicator of living standards—is expected to grow by 3.0% on average through 2026, well below the average of 3.8% in the decade before COVID-19.

Global inflation is expected to moderate to 3.5% in 2024 and 2.9% in 2025, but the pace of decline is slower than was projected just six months ago. Many central banks, as a result, are expected to remain cautious in lowering policy interest rates. Global interest rates are likely to remain high by the standards of recent decades—averaging about 4% over 2025-26, roughly double the 2000-19 average. 

“Although food and energy prices have moderated across the world, core inflation remains relatively high—and could stay that way,” said Ayhan Kose, the World Bank’s Deputy Chief Economist and Director of the Prospects Group. “That could prompt central banks in major advanced economies to delay interest-rate cuts. An environment of ‘higher-for-longer’ rates would mean tighter global financial conditions and much weaker growth in developing economies.” 

The latest Global Economic Prospects report also features two analytical chapters of topical importance. The first outlines how public investment can be used to accelerate private investment and promote economic growth. It finds that public investment growth in developing economies has halved since the global financial crisis, dropping to an annual average of 5% in the past decade. Yet public investment can be a powerful policy lever. For developing economies with ample fiscal space and efficient government spending practices, scaling up public investment by 1% of GDP can increase the level of output by up to 1.6% over the medium term. 

The second analytical chapter explores why small states—those with a population of around 1.5 million or less—suffer chronic fiscal difficulties. Two-fifths of the 35 developing economies that are small states are at high risk of debt distress or already in it. That’s roughly twice the share for other developing economies. Comprehensive reforms are needed to address the fiscal challenges of small states. Revenues could be drawn from a more stable and secure tax base. Spending efficiency could be improved—especially in health, education, and infrastructure. Fiscal frameworks could be adopted to manage the higher frequency of natural disasters and other shocks. Targeted and coordinated global policies can also help put these countries on a more sustainable fiscal path.

Download the full report: https://bit.ly/GEP-June-2024-FullReport 

Download growth data:  https://bit.ly/GEP-June-2024-Data 

Download charts: https://bit.ly/GEP-June-2024-Charts

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HIGHLIGHTS from Chapter 1: THE GLOBAL OUTLOOK

Key Points Global growth is projected to hold steady at 2.6 percent this year, despite flaring geopolitical tensions and high interest rates, before edging up to 2.7 percent in 2025-26 alongside modest expansions of trade and investment. Despite improvements in near-term growth prospects, the outlook is subdued. In 2024-25, growth is set to underperform its 2010s average in nearly 60 percent of economies, representing more than 80 percent of global output and population. Global inflation is projected to moderate at a slower clip than previously assumed, averaging 3.5 percent this year. Reflecting continued inflationary pressures, central banks are likely to remain cautious in easing policy. The shocks of recent years have impeded per capita income catch-up, with almost half of EMDEs losing ground relative to advanced economies over 2020-24. Amid elevated levels of conflict, prospects remain especially lackluster in many vulnerable economies. Risks have become somewhat more balanced, but downside risks still predominate, including geopolitical tensions, trade fragmentation, higher-for-longer interest rates amid persistent inflation, and climate-change-related natural disasters. Global policy efforts are needed to safeguard trade, support green and digital transitions, deliver debt relief, and improve food security.  High debt and elevated debt-servicing costs will require EMDE policy makers to balance sizable investment needs with fiscal sustainability.  To meet development goals, policies are needed to raise productivity growth, improve public investment efficiency, build human capital, and close labor market gender gaps.

Global activity: stabilizing growth. Following several years of overlapping negative shocks, the global economy is stabilizing. Global growth this year is envisaged to remain at 2.6 percent—a slightly faster pace than previously expected, due mainly to the continued solid expansion of the U.S. economy. Growth is projected to edge up to an average of 2.7 percent in 2025-26, as trade growth strengthens and broad but measured monetary policy easing supports activity. Nevertheless, the global outlook remains subdued relative to historical standards: both advanced economies and EMDEs are set to grow at a slower pace than in the decade preceding the pandemic (figure A). Moreover, growth in 2024-25 is set to underperform its average pace in the 2010s in nearly 60 percent of economies, representing more than 80 percent of global output and population. (figure B). Global inflation is projected to moderate to 3.5 percent in 2024 and 2.9 percent in 2025, but the anticipated pace of decline is slower than expected in January (figure C). 

EMDE outlook: subdued prospects. EMDE growth is forecast to moderate to 4 percent in 2024 and hover around that pace over 2025-26. Growth in China is expected to slow this year and ease further in 2025-26, with cyclical headwinds weighing on growth in the near term along with a continuing structural slowdown. Excluding China, EMDE growth is projected to edge up to 3.5 percent this year and then firm to an average of 3.9 percent in 2025-26, as inflation recedes, financial conditions ease, and external demand picks up. Nevertheless, the multiple shocks of recent years have impeded per capita income catch-up, with almost half of EMDEs losing ground relative to advanced economies over 2020-24 (figure D). Significant challenges persist in vulnerable economies—including in low-income countries (LICs) and those facing elevated levels of conflict and violence—where growth prospects have deteriorated markedly. 

Risks to the outlook: tilted to the downside. Although risks have become somewhat more balanced, they remain tilted to the downside. Escalating geopolitical tensions could disrupt trade and commodity markets, hurting economic activity. Heightened trade policy uncertainty and proliferating trade restrictions could weigh on trade prospects. Advanced-economy interest rates are expected to remain well above 2000-19 average levels and could turn out even higher if inflationary pressures persist, substantially slowing global growth (figure E).Other risks include weaker-than-expected growth in China and severe climate-change-related natural disasters. On the upside, global disinflation could proceed at a faster pace than currently envisioned, aided by stronger productivity growth. Additionally, U.S. growth could be higher than expected on account of continued strong labor supply dynamics.

Global policy challenges: safeguard trade, support green and digital transitions, deliver debt relief, and improve food security. Enhanced international cooperation is needed to safeguard trade and tackle the threat of climate change. Global cooperation is also essential to leverage the benefits of new technologies such as artificial intelligence (AI), including by tapping AI solutions to address global challenges. Coordinated improvements in debt relief will be necessary to free up resources for growth-enhancing investments, particularly in some of the most vulnerable EMDEs, given elevated financing needs. Urgent action is needed to tackle the root causes of food insecurity and protect vulnerable households.

Near-term domestic policy challenges: calibrating monetary policy and rebuilding fiscal space. Still-elevated inflation risks underscore the need for monetary policy makers to maintain steadfast focus on price stability. If inflation were to surprise to the upside, it would be critical for central banks to signal their readiness to pause or reduce the pace of monetary easing. Rebuilding fiscal buffers will be important in containing debt-service burdens and regaining market confidence, helping to reduce funding costs. EMDEs will need to mobilize resources to tackle development challenges without damaging the sustainability of their fiscal positions, including through strengthening public investment management. Small states face unique fiscal challenges stemming from their exposure to large external shocks: more than one-third of small states are at high risk of debt distress or already in it, roughly twice the share in other EMDEs (figure F).

Structural policy priorities: boosting public investment and long-term growth. To meet development goals and bolster long-term growth prospects, reforms at the national level are needed to enhance the efficiency of public investment, boost human capital, and strengthen resilience and inclusion. To accelerate public investment in EMDEs, it is critical to expand fiscal buffers, including through reforms aimed at increasing domestic revenue mobilization and via enhanced support from the global community. Mobilizing public resources can, in turn, help facilitate private investment. Bolstering food security is vital, particularly in light of increased hunger, proliferating trade restrictions, and the risks arising from conflict. Widening gender gaps in the labor market and elevated youth unemployment rates in EMDEs highlight the need for labor market reforms and targeted social protection measures that bolster labor force participation.

Figure: Global growth prospects and policy challenges
The global economy is stabilizing but the outlook remains subdued—both advanced economies and EMDEs are projected to grow at a slower pace over 2024-26 than their 2010-19 averages. Moreover, growth in 2024-25 is set to underperform its average pace in the 2010s in nearly 60 percent of economies, representing more than 80 percent of global output and population. Recent upward pressures on global core inflation are anticipated to gradually ease, such that headline inflation converges to levels broadly consistent with central bank targets by 2026. The multiple shocks of recent years have impeded per capita income catch-up, with almost half of EMDEs losing ground relative to advanced economies over 2020-24. Advanced-economy interest rates are expected to remain well above 2000-19 average levels and could turn out higher still if inflationary pressures persist. Fiscal challenges are particularly acute in small states, where fiscal deficits are generally larger, and the risks of debt distress are greater than in other EMDEs.
A. Contributions to global growth	B. Lower average GDP growth in 2024-25 compared to 2010-19
C. Global consumer price inflation	D. Share of EMDEs with GDP per capita growth lower than in advanced economies
E. Monetary policy interest rates in advanced economies	F. Risk of debt distress in EMDEs
Sources:  Bloomberg; Federal Reserve Bank of St. Louis; Oxford Economics; UN World Population Prospects; World Bank; World Bank-IMF Debt Sustainability Framework. Note: f = forecast; AEs = advanced economies; EMDEs = emerging market and developing economies. A.  GDP aggregates are calculated using real U.S. dollar GDP weights at average 2010-19 prices and market exchange rates. B. “Economies” refers to the share of countries, “GDP” refers to the share of world GDP, and “population” is the share of the world population. C. Model-based GDP-weighted projections of consumer price inflation using Oxford Economics’ Global Economic Model. Sample include 65 economies, including 31 EMDEs, and excludes Argentina and República Bolivariana de Venezuela. Confidence bands are derived from Consensus Economics forecast errors using the pre-pandemic sample. Horizontal line shows the average of most recent country-specific inflation targets, where available, or the 2015-19 average. D.   Horizontal line indicates the 50 percent threshold. E.  Average annual policy rates. Aggregates are calculated as GDP-weighted averages of the policy rates and policy rate expectations for the United States, the euro area, and the United Kingdom. Policy rate expectations are based on futures curves observed on May 31, 2024. F.   Share of small states and other EMDEs in overall debt distress or at risk of debt distress, based on the joint World Bank-IMF Debt Sustainability Framework for Low Income Countries (LIC-DSF) as of March 30, 2024.

Fiscal Challenges in Small States: Weathering Storms, Rebuilding Resilience

Key Points Fiscal positions have deteriorated markedly in emerging market and developing economy (EMDE) small states over the past decade. Forty percent of the 35 EMDE small states are at high risk of or already experiencing debt distress, roughly twice the share for other EMDEs. Natural disasters and global recessions weaken small states’ fiscal and debt positions, even more than in other EMDEs. Since the pandemic, debt has been driven up by fiscal deficits, as well as significant economic contractions, and slow recoveries. A variety of reforms are needed to rebuild buffers and strengthen fiscal resilience. Notably, rules-based fiscal frameworks can be implemented more widely to better manage volatility, complemented by policies to increase reliance on efficient taxes and repurpose already high spending. Support from the international community is critical to bolstering resilience against climate-change-related natural disasters in these economies.

Small states’ fiscal vulnerabilities. Small states face significant fiscal challenges arising from common vulnerabilities. Many of them are tropical islands, and highly exposed to costly natural disasters, particularly storms and other weather-related events that have become more frequent with climate change (figure 1.A). Additionally, their high economic openness and narrow export bases expose them to adverse external developments, notably global recessions. As a result, natural disasters and global recessions weaken small states’ fiscal and debt positions, even more than in other EMDEs. These challenges are further exacerbated by highly volatile revenues and large spending needs, including to invest in climate-change-resilience. 

Small states’ fiscal positions have deteriorated over the past decade. Between 2011 and 2023, average government debt in small states increased by about 11 percentage points of GDP, with the average debt-to-GDP ratio standing at 61 percent in 2023, higher than in other EMDEs. Prior to the pandemic, rising debt levels in small states partly reflected persistent primary fiscal deficits. Since the pandemic, debt levels have been driven up by larger deficits, as well as significant economic contractions, and slow recoveries. In 2020-23, primary fiscal balances were weaker than their pre-pandemic average in three-quarters of small states (figure 1.B). Forty percent of the 35 EMDE small states are at high risk of or already experiencing debt distress (figure 1.C). 

Comprehensive fiscal reforms are necessary. The experience of the pandemic highlights small states’ vulnerabilities to large shocks and their related fiscal challenges. Small states’ fiscal frameworks should, therefore, be even more resilient than those of other EMDEs. A well-designed, flexible, but enforceable rules-based fiscal framework with ample buffers can provide a better response to external shocks and manage volatility (figure 1.D). These can be complemented by reforms to make better use of already high spending, and enhance revenue mobilization, particularly through greater reliance on efficient taxes. The international community has important roles to play in supporting small states in all these areas, particularly in bolstering resilience against larger and more frequent climate-change-related natural disasters.

Figure 1. Fiscal Challenges in Small States: Weather Storms, Rebuilding Resilience
The COVID-19 pandemic, the global shocks that followed, and costly natural disasters have worsened budgetary and debt positions in small states, intensifying their already substantial fiscal challenges. Since the pandemic about three-quarters of small states have had primary balances weaker than the pre-pandemic average. Forty percent of small states are at high risk of debt distress or already in it, roughly twice the share for other EMDEs. To improve their fiscal sustainability and resilience to future shocks, notably from large climate-change-related natural disasters, small states need to strike a balance between maintaining adequate fiscal buffers and increasing investments in climate-change-resilient infrastructure and other priority areas. Comprehensive reforms are essential, including expanding well-designed, and flexible but enforceable rules based fiscal frameworks.
A. Average cost and frequency of natural disasters	B. Shares of EMDEs with weaker primary balances in 2020-23 than before the pandemic
C. Risk of debt distress	D. Share of economies with fiscal rules, 2021
Sources: Davoodi et al. (2022); EM-DAT (database); WEO (database); World Bank. Notes: EMDEs = emerging market and developing economies; EAP = East Asia and Pacific; LAC = Latin America and the Caribbean. A. Frequency is the average number of natural disasters per year, adjusted by land mass. Unit of frequency is the number of natural disasters per year per one hundred thousand square kilometers. Average cost of natural disasters per year as percent of GDP for 24 small states and 93 other EMDEs. EAP small states include 8 economies, LAC small states include 11 economies, and other small states include 5 economies. Natural disasters include droughts, storms, floods, extreme temperatures, earthquakes, volcanic activity, and wildfires. Sample period from 2000-22. B. Bars show the percent of countries with weaker primary balances as a share of GDP in 2020-23 than the average for the period 2015-19. Sample includes 32 small states and 110 other EMDEs. C. Shares of small states and other EMDEs in overall debt distress or at risk of debt distress, based on the published Joint World Bank-IMF Debt Sustainability Framework for Low Income Countries (LIC-DSF) as of March 30, 2024. D. Percent of economies that have fiscal rules as of 2021.

Key Points Fiscal positions have deteriorated markedly in emerging market and developing economy (EMDE) small states over the past decade. Forty percent of the 35 EMDE small states are at high risk of or already experiencing debt distress, roughly twice the share for other EMDEs. Natural disasters and global recessions weaken small states’ fiscal and debt positions, even more than in other EMDEs. Since the pandemic, debt has been driven up by fiscal deficits, as well as significant economic contractions, and slow recoveries. A variety of reforms are needed to rebuild buffers and strengthen fiscal resilience. Notably, rules-based fiscal frameworks can be implemented more widely to better manage volatility, complemented by policies to increase reliance on efficient taxes and repurpose already high spending. Support from the international community is critical to bolstering resilience against climate-change-related natural disasters in these economies.

Small states’ fiscal vulnerabilities. Small states face significant fiscal challenges arising from common vulnerabilities. Many of them are tropical islands, and highly exposed to costly natural disasters, particularly storms and other weather-related events that have become more frequent with climate change (figure 1.A). Additionally, their high economic openness and narrow export bases expose them to adverse external developments, notably global recessions. As a result, natural disasters and global recessions weaken small states’ fiscal and debt positions, even more than in other EMDEs. These challenges are further exacerbated by highly volatile revenues and large spending needs, including to invest in climate-change-resilience. 

Small states’ fiscal positions have deteriorated over the past decade. Between 2011 and 2023, average government debt in small states increased by about 11 percentage points of GDP, with the average debt-to-GDP ratio standing at 61 percent in 2023, higher than in other EMDEs. Prior to the pandemic, rising debt levels in small states partly reflected persistent primary fiscal deficits. Since the pandemic, debt levels have been driven up by larger deficits, as well as significant economic contractions, and slow recoveries. In 2020-23, primary fiscal balances were weaker than their pre-pandemic average in three-quarters of small states (figure 1.B). Forty percent of the 35 EMDE small states are at high risk of or already experiencing debt distress (figure 1.C). 

Comprehensive fiscal reforms are necessary. The experience of the pandemic highlights small states’ vulnerabilities to large shocks and their related fiscal challenges. Small states’ fiscal frameworks should, therefore, be even more resilient than those of other EMDEs. A well-designed, flexible, but enforceable rules-based fiscal framework with ample buffers can provide a better response to external shocks and manage volatility (figure 1.D). These can be complemented by reforms to make better use of already high spending, and enhance revenue mobilization, particularly through greater reliance on efficient taxes. The international community has important roles to play in supporting small states in all these areas, particularly in bolstering resilience against larger and more frequent climate-change-related natural disasters.