Global growth is projected to slow for the third year in a row, reaching 2.4% in 2024 from 2.6% in 2023, significantly below the 2010s average and the slowest half-decade of gross domestic product (GDP) growth in 30 years.

The newly released World Bank ‘Global Economic Prospects’ report notes that this slowdown comes as the world nears the midpoint of what was intended to be a transformative decade for development.

To meet climate and other key global development goals by 2030, developing countries must secure a substantial increase in investment, about $2.4-trillion a year. However, the outlook is grim without a robust policy package, as per capital investment growth in developing economies is projected to average only 3.7% between 2023 and 2024, just over half the rate of the previous two decades.

“The medium-term outlook has darkened for many developing economies amid slowing growth in most major economies, sluggish global trade and the tightest financial conditions in decades.

“Further, borrowing costs for developing economies, especially those with poor credit ratings, are likely to remain steep with global interest rates stuck at four-decade highs in inflation-adjusted terms,” the World Bank says.

Developing economies are forecast to grow at 3.9%, which is more than one percentage point below the average of the previous decade. After a disappointing performance last year, low-income countries should grow 5.5%, which is weaker than previously expected.

“By the end of 2024, people in about one out of every four developing countries and about 40% of low-income countries will still be poorer than they were on the eve of the Covid-19 pandemic in 2019,” the organisation said in the report.

“Without a major course correction, the 2020s will go down as a decade of wasted opportunity,” says World Bank Group chief economist and senior VP Indermit Gill.

“Near-term growth will remain weak, leaving many developing countries, especially the poorest, stuck in a trap, with paralysing levels of debt and tenuous access to food for nearly one out of every three people. That would obstruct progress on many global priorities,” he emphasised.

While the global economy is in a better place than it was a year ago - the risk of a global recession has receded, largely because of the strength of the US economy - mounting geopolitical tensions could create fresh near-term hazards for the world economy.

“However, opportunities still exist to turn the tide. This report offers a clear way forward by spelling out the transformation that can be achieved if governments act now to accelerate investment and strengthen fiscal policy frameworks,” Gill added.

SSA GROWTH
Growth in sub-Saharan Africa (SSA) decelerated to an estimated 2.9% in 2023. South Africa experienced a further slowdown in growth to an estimated 0.7% in 2023, owing to monetary policy tightening, the impact of the energy crisis and transport bottlenecks.

In 2024, growth in SSA is expected to accelerate to 3.8% and firm further to 4.1% in 2025, as inflationary pressures fade and financial conditions ease.

However, the regional growth projections mask a mix of upgrades and downgrades at the country level. While growth in the largest economies in SSA is expected to lag the rest of the region, non-resource-rich economies are forecasted to maintain a growth rate above the regional average.

Excluding the three largest SSA economies, namely Angola, Nigeria and South Africa, growth in the region is expected to accelerate from 3.9% in 2023 to 5% in 2024, and strengthen further to 5.3% in 2025.

Further, although metal exporters are expected to recover from their growth slump in 2023, downgrades are still concentrated among these economies, with continued weak growth in demand from China expected to be a drag on activity, the Global Economic Prospects report said.

Meanwhile, per capita income in SSA, on average, is projected to grow by a meagre 1.2% this year and 1.5% in 2025.

“By 2025, per capita GDP in about 30% of the region's economies, with a total population of more than 250-million, will not have fully recovered to its pre-pandemic level. This implies that these economies will have lost several years in advancing per capita income,” the report said.

SSA RISKS
The outlook for 2024 is subject to several downside risks, including a rise in political instability and violence, such as the intensification of the conflict in the Middle East, disruptions to global or local trade and production, increased frequency and intensity of adverse weather events, a sharper-than-expected global economic slowdown and higher risk of government defaults.

“An escalation of the conflict in the Middle East could exacerbate food insecurity in SSA as a conflict-induced sustained oil price spike would not only raise food prices by increasing production and transportation costs but could also disrupt supply chains.

“Although global food and energy prices have retreated from their peaks in 2022, disruptions to global or local trade and production could reignite consumer price inflation, especially food price inflation, throughout the region. Such disruptions, especially in mining and agriculture, could be triggered by extreme weather events linked partly to climate change,” the World Bank report noted.

Further increases in violent conflicts could push growth below the baseline and result in extended humanitarian crises in many of SSA’s most economically vulnerable countries.

The sharp rise in public debt service costs in many SSA economies since the pandemic has increased the need for debt reduction, particularly in highly indebted countries, the report added.

COMMODITY CYCLES
Meanwhile, the Global Economic Prospects report also identifies what two-thirds of developing countries, specifically commodity exporters, can do to avoid boom-and-bust cycles.

Governments in these countries often adopt fiscal policies that intensify booms and busts. When increases in commodity prices boost growth by one percentage point, for example, governments increase spending in ways that boost growth by an additional 0.2 percentage point.

“In general, in good times, fiscal policy tends to overheat the economy. In bad times it deepens the slump. This procyclicality is 30% stronger in commodity-exporting developing economies than it is in other developing economies. Fiscal policies also tend to be 40% more volatile in these economies than in other developing economies,” the report pointed out.

The instability associated with higher procyclicality and volatility of fiscal policy produces a chronic drag on the growth prospects of commodity-exporting developing economies.

“This drag can be reduced by putting in place a fiscal framework that helps discipline government spending, by adopting flexible exchange-rate regimes and by avoiding restrictions on the movement of international capital.

“On average, these policy measures could help commodity exporters in developing economies boost their per capita GDP growth by as much as one percentage point every four or five years.

“Countries can also benefit by building sovereign wealth funds and other rainy-day funds that can be deployed quickly in an emergency,” the World Bank said in the report.