As the world approaches the midpoint of a decade meant to bring about significant development changes, the global economy is on track to achieve an unfortunate milestone by the close of 2024 – marking the most sluggish period of GDP growth in three decades, says the World Bank.
According to the World Bank’s latest Global Economic Prospects report, 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.
“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,” the report reads in part.
Global growth is projected to slow for the third year in a row – from 2.6% last year to 2.4% in 2024, almost three-quarters of a percentage point below the average of the 2010s, says the World Bank.
Developing economies are projected to grow just 3.9%, more than one percentage point below the average of the previous decade.
It is noteworthy that the current decade (2020-2030) was intended to be a transformative decade for development.
In 2019, the United Nations Secretary General, Antonio Guterres called for a decade of action on three levels: global action (to mobilize all sectors of the society to secure greater leadership, more resources, and smarter solutions for the Sustainable Development Goals), local action (embedding the needed transitions in the policies, budgets, institutions and regulatory frameworks of governments, cities and local authorities), and people action (including youth, civil society, the private sector, unions, academia and other stakeholders to generate an unstoppable movement pushing for the required transformations.
However, the World Bank report says that by the end of 2024, people in about one out of every four developing countries and about 40% 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% this year from 1.5% in 2023.
The World Bank report reads that per capita investment growth in developing economies between 2023 and 2024 is expected to average only 3.7%, just over half the rate of the previous two decades.
This does not sound good for the global south because 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. By doing this, the pace of convergence with advanced-economy income levels speeds up, the poverty rate declines more swiftly, and productivity growth quadruples.
Other benefits also materialize during these booms: among other things, inflation falls, fiscal and external positions improve, and people’s access to the internet expands rapidly.
“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.”
Sub Saharan Africa
“Growth in Sub Saharan Africa is expected to accelerate to 3.8 percent in 2024 and firm further to 4.1 percent in 2025 as inflationary pressures fade and financial conditions ease,” the report reads.
While growth in the largest economies in Sub Saharan Africa is expected to lag the rest of the region, non-resource-rich economies are forecasted to maintain a growth rate above the regional average. Excluding the three largest Sub Saharan African economies (Nigeria, South Africa and Angola), growth in the region is expected to accelerate from 3.9 percent in 2023 to 5 percent in 2024 and strengthen further to 5.3 percent in 2025.
Per capita income in Sub Saharan Africa, on average, is projected to grow by a meager 1.2 percent this year and 1.5 percent in 2025. By 2025, per capita GDP in about 30 percent of the region’s economies, with a total population of more than 250 million, will not have fully recovered to its pre-pandemic level. This implies that these economies will have lost several years in advancing per capita income.
The World Bank, however, says that the outlook is subject to several downside risks. They include a rise in political instability and violence, such as the intensification of the conflict in the Middle East, disruptions to global or local trade and production, increased frequency and intensity of adverse weather events, a sharper-than-expected global economic slowdown, and higher risk of government defaults.
The Bank says that an escalation of the conflict in the Middle East could exacerbate food insecurity in Sub Saharan Africa as a conflict-induced sustained oil price spike would not only raise food prices by increasing production and transportation costs but could also disrupt supply chains.
It adds, “Although global food and energy prices have retreated from their peaks in 2022, disruptions to global or local trade and production could reignite consumer price inflation, especially food price inflation, throughout the region. Such disruptions, especially in mining and agriculture, could be triggered by extreme weather events linked partly to climate change.”
The World Bank also says that further increases in violent conflicts could push growth below the baseline and result in extended humanitarian crises in many of Sub Saharan Africa’s most economically vulnerable countries.
Furthermore, the sharp rise in public debt service costs in many Sub Saharan African economies since the pandemic has increased the need for debt reduction, particularly in highly indebted countries.