World Economic Prospects, 2024 – World bank

World bank vide its report titled ‘Global economic prospects” leads us into Global outlook, regional outlooks, harnessing the benefits of public investment, and fiscal challenges in small states: weathering storms, rebuilding resilience with the technical excellence of its staff and other world consultants who regularly associate with this august organisation. With immense pleasure, let us learn the details.

Global economic prospects June 2024

Mr Indermit Gill, the Senior Vice President and Chief Economist, the World Bank Group gave the following introduction as a summary. (I have annotated myself to understand better, not his exact words)

It indicates that global growth is holding steady, having slowed for three consecutive years, inflation has been cut to a three-year low, and financial conditions have brightened. In short, in his view, the world economy appears to be in final approach for a “soft landing.” The global interest rates are expected to hover around 4% twice that of the one in the decade before pre covid 2019 levels. Trade barriers seem to crop up in countries contributing nearly 30% of GDP of the world but these are the ones facing general elections electing new teams to run their countries.

Global growth is stabilizing at a rate insufficient for progress on key development goals—2.7 percent a year on average through 2026, well below the 3.1 percent average in the decade before COVID-19.

However, he had appreciation for the resilience shown by American economy which contributed to the betterment of the global economy. He further asserted the following words about India and Indonesia, very reassuring words for the galaxy of the developing nations. Quoted in his words:

“India and Indonesia are two additional examples of robust performance. India’s economy has been buoyed by strong domestic demand, with a surge in investment, and robust services activity. It is projected to grow an average of 6.7 percent per fiscal year from 2024 through 2026—making South Asia the world’s fastest-growing region. Indonesia is expected to benefit from a growing middle class and generally prudent economic policies, expanding by an average of 5.1 percent over the next two years.”

Let us analyse the voluminous reports chapter wise.

Chapter 1. Global outlook (EMDE indicates developing markets and emerging economies)

What are the expectations for the global economy”

• The inflation may end up at a slower clip at 3.5% this year.
• EMDE growth is projected to moderate from 4.2 percent in 2023 to 4 percent in 2024
• Monetary policy: Given continued inflationary pressures, central banks in both advanced economies and emerging market and developing economies (EMDEs) will likely remain cautious in easing monetary policy. As such, average benchmark policy interest rates over the next few years are expected to remain about double the 2000-19 average.
• Global efforts are needed to safeguard trade, support green and digital transitions, deliver debt relief, and improve food security. This may be required to meet the continued inflation, heightened tensions among the nations, and volatile commodity prices.
• At the national level, persistent inflation risks underscore the need for EMDE monetary policies to remain focused on price stability. High debt and elevated debt-servicing costs will require policy makers to seek ways to sustainably boost investment while ensuring fiscal sustainability.
• Real GDP among the nations.

•  (Please refer page 26 of the report for table 1.1 of real GDP.) Yes, the silver lining of the growth of India uplifted the morale of the economists.

Let us move on to the second chapter – 2

Regional Outlooks (EAP)

East Asia and pacific country (EAP) consist of 23 countries with the names like China, Cambodia, Fiji, Indonesia, Lao, Malaysia, Mongolia, Thailand, Myanmar, others like Nauru, Palau, Papua New Guinea, Philippines, Samoa, Tonga etc.

What are the growth areas with separately for China and then, for others?

China’s performance

1. Plus, points include exports expanded robustly alongside firming industrial production. Manufacturing investment was firm, reflecting solid demand for products like electric vehicles and batteries, as well as ongoing government support for priority sectors such as semiconductors. Meanwhile, China’s infrastructure investment was solid, benefiting from public spending. In contrast, real estate investment continued to decline amid the ongoing downturn in the property sector.

2. Capital inflows have recently declined in China. Growth is projected to slow to 4.8 percent in 2024 with the investment growth to remain tepid.

3. Growth is projected to be 4.1% in 2025 while it may stabilize around 4.0% in 2026.

What about the growth outside China in EAP?

1. Growth is expected to pick up 4.6% this year buoyed up by tourism, service sector, with strong showing by Malaysia, Philippines, and Indonesia in private consumption supported by low inflation.

2. Activity is set to accelerate in Papua New Guinea, due to an uptick in mining activity, and in Palau, as a delayed recovery in tourism gains traction.

3. Monetary policy is expected to ease this year and next in most economies, with declining real borrowing costs set to provide some modest support to domestic demand.

Let us project the growth as a whole for EAP

Growth in EAP is projected to slow to 4.8 percent this year, 4.2 percent in 2025, and 4.1 percent in 2026, mainly reflecting decelerating activity in China. A pickup in global goods trade is expected to support growth across the region, with tourism-dependent economies also set to benefit from a further recovery in tourism this year.

Some broad statistical indicators to have some understanding.

((Real GDP growth at market prices in percent, unless indicated otherwise.)

One can easily refer to pages 81-82 for detailed information about other countries.

Europe and Central Asia country forecasts 

Let us look at the performance of 22 countries under this group.

(Real GDP growth at market prices in percent, unless indicated otherwise

Discussion

Growth in Europe and Central Asia (ECA) is projected to soften to 3.0 percent this year and to 2.9 percent in 2025. The slowdown in 2024 largely reflects decelerations in the Russian Federation and Türkiye. Excluding these two economies and Ukraine, growth is projected to firm this year and next, as inflation eases, monetary policy rates are cut, and the growth of exports, particularly to the euro area, strengthens.

Prevalent predominant downside risk to the growth outlook, especially those linked to Russia’s invasion of Ukraine and conflict in the Middle East do continue.

Uncertainty about economic policies is also likely to remain elevated. Although the risks of higher-than-expected inflation have decreased, there could still be upward pressure on commodity prices or wages, along with potential new episodes of financial strains.

Some more on the developmental side.

• In Russia, growth picked up to 3.6 percent in 2023—a 1 percentage point upward revision from January’s estimate. After cuts in early 2024, oil production hovered around 9.2 mb/d in the second quarter, down by 0.4 mb/d from 2023. Growth in Russia is forecast to decelerate to 2.9 percent in 2024, 1.4 percent in 2025 and 1.1 percent in 2026, near its potential rate.
• Türkiye’s growth slowed to a still-robust 4.5 percent in 2023. Economic activity has remained resilient into 2024. Policy interest rates have been hiked nine times since June 2023, from 8.5 to 50 percent, to contain inflation—which remains persistently high, at 75.4 percent year-on-year in May. Large wage increases, currency depreciation, and tax adjustments have contributed to huge inflation. These are the negative features.
• Growth in ECA is projected to decelerate gradually to 3 percent in 2024, 2.9 percent in 2025, and 2.8 percent in 2026.

Latin America and the Caribbean (28 countries – list on page 75)

Growth in Latin America and the Caribbean (LAC) is forecast to decelerate from 2.2 percent in 2023 to 1.8 in 2024 (after the peak in interest rates in 2023) before picking up to 2.7 percent in 2025.

Business confidence has remained positive in Brazil and Mexico, and has improved in Colombia, and recovered in Argentina after deteriorating strongly in the first months of the year.

Let us peep into the individual growth prospects of the nations under this group.

• Brazil: Brazil’s growth is expected to moderate to 2 percent in 2024 and 2.2 percent in 2025. The projection for 2024 reflects both a carry-over from the slowdown in the second half of last year and a weaker agricultural harvest this year. Meanwhile, after being broadly supportive last year, fiscal policy is expected to exert a moderate drag on growth in 2024 and 2025 as the government resumes efforts to improve fiscal sustainability.
• Mexico: Growth in Mexico is forecast to slow to 2.3 percent in 2024 and 2.1 percent in 2025. with inflation and interest rates envisaged to fall later this year, investment and consumption are expected to pick up in 2025. Fiscal policy is projected to expand in 2024 and consolidate in 2025.
• Argentina’s economy is projected to contract markedly, by 3.5 percent in 2024, before rebounding by 5.0 percent in 2025.
• Colombia’s growth is forecast to rise up to 1.3 percent in 2024 and 3.2 percent in 2025, closer to the economy’s potential growth rate. After a weak growth performance in 2023, private consumption and exports are projected to recover, with the central bank expected to continue reducing policy rates as inflation declines.
• Good news from Chile – Growth in Chile is forecast to rise to 2.6 percent in 2024 and 2.2 percent in 2025, as private consumption recovers from its 2023 weakness. The central bank has cut interest rates aggressively as annual core and headline inflation have fallen close to its 3 percent target, which should also allow investment to recover in 2024 and 2025. Further, strong demand for copper and lithium exists.

Overall, Growth in the Caribbean economies will accelerate to 7.1 percent in 2024 and remain robust at 5.7 percent in 2025. Even excluding Guyana, which continues to experience a resource- based boom after the discovery of oil in 2015, the subregion’s growth is expected to pick up to 3.9 in 2024 and 4 percent in 2025.

Middle East and North Africa

After slowing to 1.5 percent in 2023, growth in the Middle East and North Africa (MNA) region is expected to pick up to 2.8 percent in 2024 and 4.2 percent in 2025, mainly due to a gradual resumption of oil production. The outlook for 2024 has weakened since January, partly reflecting extensions of additional voluntary oil production cuts and the ongoing conflict in the Middle East centered in Gaza.

Some statistical delights.

Violence has worsened in the region since the onset of the recent conflict in the Middle East centred in Gaza, and an escalation could worsen food insecurity, especially in fragile countries. In oil importers, fiscal and external financing needs are high, which makes them vulnerable to a sudden shift in global financial conditions.

Additionally, commercial banks in several countries are heavily exposed to risks related to sovereign stress.

South Asia

Growth in the South Asia (SAR) region is projected to slow from 6.6 percent in 2023 to 6.2 percent in 2024, mainly due to a moderation of growth in India from a high base in recent years. With steady growth in India, regional growth is forecast to stay at 6.2 percent in 2025-26. Among the region’s other economies, growth is expected to remain robust in Bangladesh, though at a slower rate than in the past several years, and to strengthen in Pakistan and Sri Lanka.

All about India

In India, growth is estimated to have picked up to 8.2 percent in fiscal year (FY) 2023/24 (April 2023 to March 2024)—1.9 percentage points higher than estimated in January. Growth in industrial activity, including manufacturing and construction, was stronger than expected, alongside resilient services activity, which helped offset a slowdown in agricultural production partly caused by monsoons (figure 2.5.1.A). Growth of domestic demand remained robust, with a surge in investment, including in infrastructure, offsetting a moderation of consumption growth as post-pandemic pent-up demand eased.

In Bangladesh, growth is set to slow to 5.6 percent in FY2023/24 (July 2023 to June 2024) from 5.8 percent in the previous fiscal. elevated inflation has dampened real wage growth and the purchasing power of households, and weighed on private consumption. Additionally, higher borrowing costs have weighed on demand. High levels of non-performing loans in the banking sector dampened investor confidence. However, government consumption and investment helped the economy.

What about Pakistan?

Activity in Pakistan has improved but remains subdued, with output set to expand 1.8 percent in FY2023/24 (July 2023 to June 2024), following a contraction of 0.2 percent in the previous fiscal year. Industrial production picked up in late 2023 to early 2024 after import controls were relaxed.

Statistical inputs for South Asia

Let us move on to Sub-Saharan Africa

A coverage of 48 countries adorns this head. Let us have a concise view of statistics.

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Growth in Sub-Saharan Africa (SSA) weakened to 3 percent in 2023. Growth in SSA is projected to pick up from 3 percent in 2023 to 3.5 percent in 2024 and about 4 percent annually in 2025-26, as fading inflationary pressures allow for interest rate cuts, which will support private consumption and investment.

Growth in the region’s three largest economies (Angola, Nigeria, South Africa) remained weak, holding back growth in the region. In early 2024, private sector activity picked up alongside a strengthening global economy.

Growth in Nigeria is projected to pick up to 3.3 percent this year and 3.5 percent in 2025. Growth in South Africa is projected to rise but remain subdued, reaching 1.2 percent in 2024 and 1.3 percent in 2025, as persistent structural constraints continue to limit near- and longer-term economic prospects. Although energy sector reforms are expected to improve energy supply in the medium term, broader reforms are necessary to lift private sector dynamism.

Growth in Angola is projected to recover to 2.9 percent this year and 2.6 percent in 2025, mainly driven by a recovery in the non-oil sector.

Violent events in SSA have increased since the pandemic. SSA countries, especially the region’s industrial-commodity exporters, have become more dependent on China for their exports.

Many SSA economies suffer from persistent poverty and fragility that stems from festering violence and conflict, especially in the Sahel region and some neighbouring countries (Ethiopia, Somalia, South Sudan), as well as the Democratic Republic of Congo.

Chapter 3. HARNESSING THE BENEFITS OF PUBLIC INVESTMENT

A significant acceleration in investment is essential if emerging market and developing economies (EMDEs) are to achieve key development goals and tackle the challenges associated with climate change.

Investment—public as well as private—tends to fuel a virtuous cycle of development, boosting growth, improving productivity, and reducing poverty.

In EMDEs, however, investment growth has seen a sustained slowdown since the global financial crisis and is expected to remain weak in the coming years. Policy action is necessary to reverse this trend.

This chapter offers a comprehensive assessment of public investment and its macroeconomic effects in EMDEs.

Let us learn a few researched facts about investment and EMDEs.

EMDEs need to invest an estimated $2.4 trillion per year, and low-income countries (LICs) have especially hefty investment gaps (World Bank 2024). LICs require annual investment of 8 percent of GDP through 2030. In EMDEs, average total investment growth decelerated from about 10 percent per year in the 2000s to 5 percent in the 2010s—the slowest average pace in the past three decades.

In light of the insights from the empirical analysis of nearly 100 plus countries, the chapter presents a high- level summary of policies in EMDEs to boost public investment and to maximize its positive macroeconomic effects. Some of the conclusions arrived at are looking at the ways to look forward.

Key findings are:

• Public investment growth in EMDEs slowed sharply over the past decade. Public investment growth in EMDEs halved from an average of 10 percent per year over 2000-09 to about 5 percent over 2010-22.
• Public investment can have broader benefit: mobilizing private investment, enhancing productivity, and generating potential output gains. Public investment can have significant crowding-in effects on private investment. In EMDEs, a scaling up of public investment by one percent of GDP leads to an increase in private investment by up to 2.2 percent over the horizon of five years, on average. It indicates the bare necessity to increase public investment and its cascading influence on private investment.
• Pursuing a “Three Es” package of policy priorities can help harness the benefits of public investment in EMDEs. The three Es are:
• Expansion of fiscal space.
• Efficiency of public investment
• Enhanced global support.

This chapter is the result of 26 research papers, extensive study of results, and final suggestions which emphatically reinforce the statement that investment, both in public/private alone improve the capabilities of EMDEs and LICs to meet the developmental goals of 8% originally agreed upon at Paris meet. (Reference: pages 153-167). Serious minded scholars/administrators/governments can read them and interpret better.

Chapter 4. FISCAL CHALLENGES IN SMALL STATES Weathering Storms, Rebuilding Resilience   

This chapter covers 35 small states which are having a population of 1-1.5 million.

The chapter presents an analysis of a broad sample of up to 35 EMDE small states that cuts across economic structures, and geographic and income groups, drawing out the many common economic and fiscal challenges they face.

What are the main findings of this chapter which does undertake detailed analytical frameworks?

Natural disasters and global recessions weaken small states’ fiscal and debt positions. An event analysis shows that both types of events significantly weaken fiscal balances and increase government debt, relative to GDP, in small states.

For example, three years after a large natural disaster or global recession, fiscal balances deteriorate by around 1.8 percentage points. Three years after a global recession, debt ratios increase by 3.5 percentage points and three years after a natural disaster, by 6 percentage points.

Debt burdens have expanded rapidly. Government debt in small states averaged 57 percent of GDP between 2011 and 2023, 10 percentage points higher than in other EMDEs.

Further, Persistent fiscal deficits have been a key driver of the increase in debt burdens.

Conclusion

The world bank report covers the economies of 111 EMDEs, 37 developed economies, and 35 small states. It has 220 pages of highly researched materials and hundreds of published papers have been quoted. It is a gold mine for economists, governments, research scholars and any one interested in the health of the globe of nations.

Reference

World bank website.

Caution

Enamoured by the wealth of information provided by the World bank compilation on the economic prospects, my above article quoting extensively, is purely informational in nature. Serious minded scholars need to consult the above report as well as others of the earlier years for a deeper study.