The global economy may be stabilizing, but the road to recovery is uneven and fraught with challenges. With growth rates still lagging behind pre-pandemic levels, especially for developing and low-income economies, concerted efforts are required to foster sustainable development.
As the world emerges from the shadows of the COVID-19 pandemic, the global economy is expected to stabilize for the first time in three years in 2024. However, this stabilization comes at a price—global growth is projected to remain weak by recent historical standards. According to the World Bank’s latest Global Economic Prospects report, the forecasted growth rate is significantly lower than pre-pandemic levels, painting a concerning picture for the global economy.
Global growth is anticipated to hold steady at 2.6% in 2024, with a slight increase to an average of 2.7% in 2025-26. This is a notable decline from the 3.1% average seen in the decade before COVID-19. The forecast indicates that over the period of 2024-26, countries that collectively account for more than 80% of the world’s population and GDP will still experience slower growth than they did in the pre-pandemic decade.
Developing economies are expected to grow at an average of 4% over 2024-25, which is slightly slower than in 2023. Low-income economies may see growth accelerate to 5% in 2024 from 3.8% in 2023. However, these projections have been downgraded for three out of every four low-income economies since January. Advanced economies are projected to maintain a steady growth rate of 1.5% in 2024, rising to 1.7% in 2025.
“Four years after the upheavals caused by the pandemic, conflicts, inflation, and monetary tightening, it appears that global economic growth is steadying,” said Indermit Gill, the World Bank Group’s Chief Economist and Senior Vice President. “However, growth is at lower levels than before 2020. Prospects for the world’s poorest economies are even more worrisome. They face punishing levels of debt service, constricting trade possibilities, and costly climate events. Developing economies will have to find ways to encourage private investment, reduce public debt, and improve education, health, and basic infrastructure. The poorest among them—especially the 75 countries eligible for concessional assistance from the International Development Association—will not be able to do this without international support.”
This year, one in four developing economies is expected to remain poorer than it was on the eve of the pandemic in 2019. This proportion doubles for countries in fragile and conflict-affected situations. The income gap between developing and advanced economies is set to widen in nearly half of the developing economies over 2020-24—the highest share since the 1990s. Per capita income in these economies, a crucial indicator of living standards, is expected to grow by only 3.0% on average through 2026, significantly below the 3.8% average in the decade before COVID-19.
Global inflation is projected to moderate to 3.5% in 2024 and 2.9% in 2025. However, the decline in inflation is slower than anticipated just six months ago. Consequently, many central banks are expected to remain cautious about lowering policy interest rates. Global interest rates are likely to remain high by recent standards, averaging about 4% over 2025-26, roughly double the 2000-19 average.
“Although food and energy prices have moderated across the world, core inflation remains relatively high—and could stay that way,” said Ayhan Kose, the World Bank’s Deputy Chief Economist and Director of the Prospects Group. “That could prompt central banks in major advanced economies to delay interest-rate cuts. An environment of ‘higher-for-longer’ rates would mean tighter global financial conditions and much weaker growth in developing economies.”
The latest report also features two analytical chapters of significant importance. The first chapter outlines how public investment can be leveraged to accelerate private investment and promote economic growth. It finds that public investment growth in developing economies has halved since the global financial crisis, dropping to an annual average of 5% in the past decade. However, public investment can be a powerful policy lever. For developing economies with ample fiscal space and efficient government spending practices, scaling up public investment by 1% of GDP can increase the level of output by up to 1.6% over the medium term.
The second chapter explores the chronic fiscal difficulties faced by small states—those with a population of around 1.5 million or less. Two-fifths of the 35 developing economies that are small states are at high risk of debt distress or already experiencing it, roughly twice the share for other developing economies. Comprehensive reforms are necessary to address these fiscal challenges. Stable and secure tax bases, improved spending efficiency, and fiscal frameworks to manage natural disasters and other shocks are essential. Targeted and coordinated global policies can also help put these countries on a more sustainable fiscal path.