The overall outlook for the global economy is finally stabilizing. That doesn't mean it won't face challenges.
The World Bank on Tuesday raised its 2024 outlook for global economic growth to hold steady at 2.6%, an increase from its previous projection of 2.4% growth. But the group warned that growth won't be felt evenly or match the clip seen before the Covid pandemic.
"Four years after the upheavals caused by the pandemic, conflicts, inflation, and monetary tightening, it appears that global economic growth is steadying," Indermit Gill, the World Bank's chief economist, said in a release accompanying the report. "However, growth is at lower levels than before 2020. Prospects for the world's poorest economies are even more worrisome."
Here are three risks the World Bank sees.
High interest rates. The group expects global inflation to slow to 3.5% this year and 2.9% in 2025 but fall at a more sluggish pace than it expected six months ago. World interest rates will likely average 4% over 2025 and 2026, roughly double the average of the two decades preceding the pandemic, according to the World Bank.
The European Central Bank and Bank of Canada have already cut their key interest rates in recent weeks. The US Federal Reserve has yet to follow, holding rates steady for a seventh consecutive time on Wednesday.
The Fed also trimmed its projections for rate cuts this year from three to one. Chair Jerome Powell acknowledged the progress made on tamping down prices but said that the central bank needs to see inflation closer to its 2% target before easing monetary policy.
"An environment of 'higher-for-longer' rates would mean tighter global financial conditions and much weaker growth in developing economies," said Ayhan Kose, the group's deputy chief economist, in a release.
Geopolitical tensions. The World Bank said that spillover risk from the Russia-Ukraine war and Israel-Hamas war could curb global growth by pushing up oil prices and shipping costs.
Oil prices have come down since initial spikes from both wars, with the price of international crude futures settling at $82.60 a barrel on Wednesday. Attacks on container vessels in the Red Sea on one of the world's most important trade routes have driven up costs and led to shipping delays.
"Escalating conflict could also dent global business and consumer sentiment, and increase risk aversion, weighing on demand and growth," the report said.
Politics. Risks also stem from several possible changes to government leadership this year. Key elections have occurred or are set to take place in India, Mexico, the United States, France and the United Kingdom, among dozens of other countries.
Trade tensions are already brewing between some of the world's biggest global economic engines. China said last month that it staunchly opposes new US tariffs on $18 billion worth of imports of Chinese electric vehicles and other products, warning that the trade barriers would affect the wider relationship between the two economic superpowers.
Then, the European Commission on Wednesday said that the EU is hiking tariffs on EVs imported from China, drawing blowback from Beijing.
"Heightened trade policy-related uncertainty and the potential for more inward-looking policies could weigh on trade prospects and economic activity," the World Bank report said.
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