Global economic growth is expected to reach an annualized rate of 2.6% this year, up from a 2.4% forecast in January, the bank said. Economists at the bank said the global economy is nearing a “soft landing” after a recent surge in prices, with average inflation falling to a three-year low amid continued growth.
While Americans’ frustration with high prices remains a major weakness in President Biden’s reelection bid, the World Bank now expects the U.S. economy to grow at an annual rate of 2.5%, nearly a full percentage point higher than forecast. January. The United States is the only developed country growing at a significantly faster pace than the bank expected at the beginning of the year.
“Globally, the overall picture is better than it was just four or five months ago,” said Indermit Gill, chief economist at the World Bank. “A lot of that is down to the resilience of the U.S. economy.”
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The bank credited “U.S. dynamism” with helping to stabilize the global economy despite the highest interest rates in years and wars in Ukraine and the Middle East. The Labor Department reported last week that payrolls rose to 272,000 in May, beating analysts’ expectations.
But global economic growth is expected to slow below the pre-pandemic average of 3.1% this year and next, and three of four developing countries are expected to grow more slowly than the World Bank projected in January, leaving little hope of narrowing the income gap with wealthier countries.
Despite most of the optimism, bankers cautioned that central banks, including the Fed, are likely to gradually reverse the interest rate hikes of the past two years, meaning global interest rates will remain elevated to an average of around 4% over the next two years, roughly double the average from two decades ago. Pandemic.
Global inflation is expected to ease to 3.5% this year and fall to 2.9% next year, but the decline is proving to be slower than banks expected. And the deterioration could prompt financial authorities to delay cutting borrowing costs. That could reduce the projected growth rate by 0.3 percentage points.
“The major risk facing the global economy is that interest rates will remain high for a prolonged period, further weakening already weak growth prospects,” Gill said.
World Bank officials also cited concern that global trade is on track to finish this year its weakest five-year period since the 1990s, with trading nations set to impose more than 700 restrictions on trade in goods and nearly 160 barriers to trade in services by 2024.
“Trade restrictive measures have skyrocketed, more than doubled compared to pre-pandemic times,” Gill said.
Rising protectionism threatens to further slow the already modest pace of global economic growth, and tariffs on imports and support for industrial subsidies that favor domestic production in many countries could further restrict trade flows already under pressure from the U.S.-China conflict and other geopolitical risks.
“The world may be stuck in the slow lane,” said Ayhan Kose, the bank’s deputy chief economist.
The 40% of developing countries at risk of a debt crisis are likely to be hit if key rates remain high for a long period of time, as many borrowed heavily to cover pandemic-related health costs and then to cover soaring food and fertilizer prices after the Ukraine war.
Gill said these countries see little prospect of any immediate debt relief and risk losing trade benefits as big powers look inward.