World Bank Raises Global Growth Forecast, Citing Strong US Economy

World Bank Raises Global Growth Forecast, Citing Strong US Economy

The World Bank has revised its global economic growth forecast for this year, now expecting a 2.6% expansion, up from the 2.4% predicted in January. This revision matches the global economy's growth in 2023. The primary driver behind this upgrade is the stronger-than-expected growth in the United States, which accounts for 80% of the improved outlook.

Impact of the US Economy

The US economy, the largest in the world, is now projected to grow by 2.5% in 2024, maintaining the same pace as in 2023 but significantly higher than the 1.6% forecasted in January. This robust performance has been pivotal in the World Bank's upgraded forecast.

From January through March, the US economy expanded at a 1.3% annual rate, the slowest pace in nearly two years. The World Bank’s forecast considered this first-quarter slowdown, attributing it to temporary factors like a surge in imports and reduced business inventories. However, core components such as consumer spending and business investment remained solid.

Ongoing Challenges and Regional Outlooks

Despite the optimistic forecast, the World Bank cautioned that global growth remains sluggish by historical standards. Inflation has cooled from 7.2% in 2022 to an anticipated 3.5% in 2024, yet it still exceeds the desired levels, leading central banks to maintain high interest rates, which could slow economic growth further.

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“There are consequences of keeping interest rates elevated for a longer period,” Kose said. “You end up with slower growth. We need to avoid lower-for-longer economic growth around the world.” He warned that the world might become “stuck in the slow lane.”

Emerging markets and developing countries face significant challenges, with expected growth at 4% this year, down from 4.2% in 2023. In these regions, population growth often outpaces economic expansion, leading to lower annual income growth per person. China, the second-largest economy, is forecasted to slow to 4.8% this year from 5.2% in 2023, primarily due to a struggling real estate market and weak consumer confidence.

Overall, while the World Bank's upgraded forecast is a positive sign, the global economy faces significant headwinds that could impede sustained growth.