The World Bank on Tuesday raised its outlook for the world economy this year but warned that the rise of new trade barriers and protectionist policies posed a long-term threat to global growth.
In its latest Global Economic Prospects report, the World Bank projected global growth to hold steady at 2.6 percent this year, an upgrade from its January forecast of 2.4 percent, and predicted that output would edge higher to 2.7 percent in 2025. The forecasts showed the global economy stabilizing after being rocked in recent years by the pandemic and the wars in Ukraine and the Middle East.
“Four years after the upheavals caused by the pandemic, conflicts, inflation and monetary tightening, it appears that global economic growth is steadying,” Indermit Gill, the World Bank’s chief economist, said in a statement accompanying the report.
However, sluggish growth continues to haunt the world’s poorest economies, which are still grappling with inflation and the burdens of high debt. The bank noted that over the next three years, countries that account for more than 80 percent of the world’s population would experience slower growth than in the decade before the pandemic.
The slightly brighter forecast was led by the resilience of the U.S. economy, which continues to defy expectations despite higher interest rates. Overall, advanced economies are growing at an annual rate of 1.5 percent, with output remaining sluggish in Europe and Japan. By contrast, emerging market and developing economies are growing at a rate of 4 percent, led by China and Indonesia.
Although growth is expected to be a bit stronger than previously forecast, the World Bank said prices were easing more slowly than it projected six months ago. It foresees global inflation moderating to 3.5 percent in 2024 and 2.9 percent next year. That gradual decline is likely to lead central banks to delay interest rate cuts, dimming prospects for growth in developing economies.
Despite the improved outlook, the global economy continues to face significant uncertainty from Russia’s war in Ukraine and the possibility that war between Israel and Hamas in Gaza could become a wide regional conflict.
Trade tensions between the world’s two largest economies — the United States and China — are also intensifying and could make international commerce more volatile. The Biden administration last month imposed sweeping new tariffs on Chinese electric vehicles and upheld the tariffs on Chinese imports that the Trump administration had imposed. The European Union is also considering new levies on Chinese green energy technology as concern grows 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 tended to distort supply chains, making them less efficient as trade was diverted to other countries to avoid import duties.
“A further proliferation of trade restrictions presents a substantial downside risk to global growth prospects,” the report said. “Heightened trade policy uncertainty and a further weakening of the multilateral trading system — both of which may follow from escalating trade restrictive measures — could have adverse effects on growth.”