The World Bank cuts its global forecasts: “This decade could be the decade of lost opportunities”

The 2020s should be the decade of great challenges: ending poverty and hunger, reducing internal and external inequalities, eradicating the most serious diseases or drastically reducing polluting emissions. But the world enters the halfway point of that decade and the assessment made by the World Bank is devastating. “Without a major course correction, the 2020s will go down in history as a decade of wasted opportunities,” says the Washington-based organization’s chief economist, Indermit Gill. For the third consecutive year, the entity foresees a slowdown in the economy, which will grow by 2.4%, two tenths less than in 2023. According to the Global economic outlookthis data means leaving the planet on the verge of “breaking a regrettable record at the end of 2024: the five years with the lowest growth in gross domestic product (GDP) in the last three decades.”

The soft landing of large economies has become the central scenario for those in charge of preparing forecasts. The Federal Reserve and the European Central Bank hope to have cooled their economies without plunging them into recession. Investors are also opting for this scenario and are beginning to transfer the euphoria to the stock markets, which have undertaken another rally since November with the prospect that rapid disinflation will also force central bankers to reduce interest rates sooner rather than later. The World Bank's forecasts do not exude that optimism. Now here near. However, they do believe that there will be no bloodshed as they note that the economy has turned out to be “surprisingly resilient.” “Global inflation is being tamed without plunging the world into a recession,” the document notes.

The fight against inflation, however, has a cost. Central banks withdraw liquidity from the markets and increase the price of money. That translates into less and more expensive credit. And many of the consequences may not have been seen yet. From the outset, this will already weigh down the economy, especially in regions such as the euro zone, which constitutes the economic bloc for which the World Bank applies a greater cut in its forecasts. According to the document, the countries of the single currency will grow by 0.7% in 2024 and 1.6% in 2025. In total, the sum of the two years leaves a total of 1.3 percentage points after a mediocre 2023, in which the 20 euro partners advanced only 0.4%.

Overall, the global economy will advance by 2.4%. The figure is very modest if one takes into account that the growth rates of this decade are below the average of 3.1% of the last decade. Although world leaders have tried to conspire to preserve investments, these will still be half of those made in the previous 20 years, despite all the outlays necessary to meet climate goals. At the last annual meetings of the World Bank and the IMF in Marrakesh, the institutions already warned that the need to invest in technology against climate change will skyrocket public debt by 50 percentage points in 2050, making the finances of the most impoverished countries unsustainable. .

Precisely, the report stops at these States, since they have been the most affected by the successive crises that the planet has faced since the decade began. The hit of the pandemic, which they faced with greater difficulties than other economies, was followed by an energy crisis and, above all, a food crisis that they had not seen for decades. And as a result of all this, they have once again ended up with high volumes of debt. According to the World Bank, at the end of 2024 the population of 40% of low-income countries will remain poorer than they were before the outbreak of the pandemic.

World Bank Mission

“Short-term growth will remain weak and will lead many developing countries, especially the poorest, into a trap, with crippling levels of debt and precarious access to food for almost one in three people. This will hinder progress on many global priorities,” says Gill, referring to the fact that this situation could disrupt plans to free the world from polluting emissions by 2050. Precisely, at the Marrakech meetings it was decided to entrust the World Bank and the rest of multilateral lenders, including the European Investment Bank, the mission of fighting climate change, as well as ending poverty and seeking common prosperity.

The risks, the document warns, are multiple: global growth could be even lower if there is another outbreak of inflation, financial markets are experiencing new episodes of stress such as that of the Silicon Valley Bank, or China's growth is weaker than expected. And if, furthermore, trade tensions between large blocks continue to escalate and they continue to withdraw. But the growing geopolitical crises also worry the World Bank. “The recent conflict in the Middle East, added to the invasion of Ukraine by the Russian Federation, has increased geopolitical risks,” says the document, which fears that an increase in hostilities in the region will skyrocket commodity prices. energy and make global trade difficult – as is already happening with the large shipping companies – which would mean a rise in prices.

There is also great hope: it is called the United States. The World Bank improves its forecast for this year by eight tenths – to 1.6% – for a market that is resisting interest rate increases thanks to the strength of employment and the government programs promoted by Joe Biden. And it does not rule out that, given the momentum of that economy, it could do better than expected. “Under these conditions, continued gains in employment will help support household incomes, while increased labor supply, along with improved productivity, will help contain business labor costs,” he notes. the report, which also points out that this would have knock-on effects on developed and emerging economies.

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