Durrant Pate/Contributor

As the world nears the midpoint of what was intended to be a transformative decade for development, the global economy is set to rack up a sorry record by the end of 2024, the slowest half-decade of economic growth in 30 years.

That’s the assessment of the World Bank in its latest Global Economic Prospects report. The World Bank argues that in one measure, the global economy is in a better place than it was a year ago with the risk of a global recession receding, largely because of the strength of the U.S. economy.

“However, mounting geo-political tensions could create fresh near-term hazards for the world economy,” warned the World Bank.

The latest Global Economic Prospects also identifies what two-thirds of developing countries —commodity exporters specifically — can do to avoid boom-and-bust cycles. The report finds that governments in these countries often adopt fiscal policies that intensify booms and busts.

Meanwhile, the medium-term outlook has darkened for many developing economies amid slowing growth in most major economies, sluggish global trade, and the tightest financial conditions in decades.

According to the multilateral lender, “Global trade growth in 2024 is expected to be only half the average in the decade before the pandemic. Meanwhile, borrowing costs for developing economies — especially those with poor credit ratings — are likely to remain steep with global interest rates stuck at four-decade highs in inflation-adjusted terms.”

Global growth projection

Global growth is projected to slow for the third year in a row, from 2.6 per cent last year to 2.4 per cent in 2024, almost three-quarters of a percentage point below the average of the 2010s. The World Bank reports says developing economies are projected to grow just 3.9 per cent, more than one percentage point below the average of the previous decade.

“After a disappointing performance last year, low-income countries should grow 5.5 per cent, weaker than previously expected. By the end of 2024, people in about one out of every four developing countries and about 40 per cent of low-income countries will still be poorer than they were on the eve of the COVID pandemic in 2019. In advanced economies, meanwhile, growth is set to slow to 1.2 per cent this year from 1.5 per cent in 2023,” the report indicated.

World Bank chief economist and senior vice-president, Indermit Gill, said: “Without a major course correction, the 2020s will go down as a decade of wasted opportunity. Near-term growth will remain weak, leaving many developing countries—especially the poorest—stuck in a trap: with paralysing levels of debt and tenuous access to food for nearly one out of every three people. That would obstruct progress on many global priorities.”

The report states that opportunities still exist to turn the tide, with the report offering a clear way forward detailing how transformation can be achieved if governments act now to accelerate investment and strengthen fiscal policy frameworks.

To tackle climate change and achieve other key global development goals by 2030, the multilateral financier says that “developing countries will need to deliver a formidable increase in investment —about US$2.4 trillion per year. Without a comprehensive policy package, prospects for such an increase are not bright. Per capita investment growth in developing economies between 2023 and 2024 is expected to average only 3.7 per cent, just over half the rate of the previous two decades.”

The report offers the first global analysis of what it will take to generate a sustained investment boom, drawing from the experience of 35 advanced economies and 69 developing economies over the past 70 years. It finds that developing economies often reap an economic windfall when they accelerate per capita investment growth to at least 4% and sustain it for six years or more.

The report cites the pace of convergence with advanced-economy income levels, which has speeded up, the poverty rate declines more swiftly, and productivity growth quadruples. Other benefits, the report adds also materialize during these booms: among other things, inflation falls, fiscal and external positions improve, and people’s access to the internet expands rapidly.

Ayhan Kose, the World Bank’s deputy chief economist and director of the prospects, noted: “investment booms have the potential to transform developing economies and help them speed up the energy transition and achieve a wide variety of development objectives. To spark such booms, developing economies need to implement comprehensive policy packages to improve fiscal and monetary frameworks, expand cross-border trade and financial flows, improve the investment climate, and strengthen the quality of institutions. That is hard work, but many developing economies have been able to do it before. Doing it again will help mitigate the projected slowdown in potential growth in the rest of this decade.”

The latest Global Economic Prospects also identifies what two-thirds of developing countries —commodity exporters specifically — can do to avoid boom-and-bust cycles. The report finds that governments in these countries often adopt fiscal policies that intensify booms and busts.