Global growth is set to slow further this year amid tight monetary policy, restrictive financial conditions, and feeble global trade and investment. Downside risks include an escalation of the recent conflict in the Middle East, financial stress, persistent inflation, trade fragmentation, and climate-related disasters. Global cooperation is needed to provide debt relief, facilitate trade integration, tackle climate change, and alleviate food insecurity. Among emerging market and developing economies (EMDEs), commodity exporters continue to grapple with fiscal policy procyclicality and volatility. Across all EMDEs, proper macroeconomic and structural policies, and well-functioning institutions, are critical to help boost investment and long-term prospects.
World Bank Group Chief Economist and Senior Vice President Indermit Gill notes in his Foreword that the end of 2024 will mark the halfway point of what was expected to be a transformative decade for development—a time when extreme poverty was to be extinguished, when major communicable diseases were to be eradicated, and when greenhouse-gas emissions were to be cut nearly in half. Instead, barring a major course correction, the world is headed for the weakest economic-growth performance of any half-decade since the 1990s. By the end of 2024, people in one out of every four developing economies will still be poorer than they were before the pandemic.
Global growth is expected to slow to 2.4 percent in 2024, the third consecutive year of deceleration. Tight monetary policies, restrictive credit conditions, and anemic global trade and investment are expected to weigh on growth. The recent conflict in the Middle East has heightened geopolitical risks. Global cooperation is critical to address the issues of high debt, climate change, trade fragmentation, and food insecurity and conflict. Across emerging market and developing economies (EMDEs), limited fiscal space highlights the need to improve spending efficiency. Decisive policy action is also needed to encourage a sustained acceleration in investment.
Growth in the East Asia and Pacific (EAP) region is projected to slow to 4.5 percent in 2024 and to 4.4 percent in 2025, from an estimated 5.1 percent in 2023, mostly owing to an anticipated deceleration in economic activity in China. Amid protracted property sector weakness, growth in China is expected to decline from 5.2 percent in 2023 to 4.5 percent in 2024 and 4.3 percent in 2025. In the rest of the region, growth is projected to edge up from an estimated 4.4 percent in 2023 to 4.7 percent in 2024 and 2025, underpinned by solid domestic demand. Risks to the outlook are skewed to the downside and include a more severe downturn in China, with adverse spillovers to the broader region, and heightened geopolitical tensions—including those from the conflict in the Middle East—which could spur higher energy and food prices and inflation. Weaker-than expected global demand and trade, as well as climate-change-related extreme weather events, pose further downside risks.
Growth in Europe and Central Asia (ECA) is expected to moderate to 2.4 percent this year, and then firm to 2.7 percent in 2025, supported by strengthening domestic demand and a gradual recovery in the euro area. In the near term, persistently high inflation will prevent a rapid easing of monetary policy in most economies and weigh on private consumption. Projected fiscal consolidation further dampens the outlook. Downside risks continue to predominate. An escalation of the conflict in the Middle East could increase energy prices, tighten financial conditions, and negatively affect confidence. Geopolitical risks in the region, including an escalation of the Russian Federation’s invasion of Ukraine, are elevated and could materialize. Higher-than-anticipated inflation or a weaker-than-expected recovery in the euro area would also negatively affect regional activity.
Growth in Latin America and the Caribbean is forecast to edge up from 2.2 percent last year to 2.3 percent in 2024 and then to 2.5 percent in 2025. The drag on economic activity from earlier monetary policy tightening is expected to diminish throughout 2024. Additionally, the expected further easing in policy rates amid moderating inflation is set to bolster growth in 2025. Though commodity prices fell last year, they remain at levels that still support economic activity. Improved prospects among major trading partners will also contribute to growth. Most large regional economies are expected to expand at about their potential rate. Risks to the forecast are tilted to the downside. The conflict in the Middle East could result in higher energy prices, which could alter expected monetary policy paths. In addition, tighter global financial conditions could weigh on private demand and accelerate fiscal consolidation in the region. Extreme El Niño weather events related to climate change pose another downside risk.
The ongoing conflict in the Middle East has heightened uncertainty and geopolitical risks in the Middle East and North Africa (MNA) region. Assuming the conflict does not escalate, growth in the region is forecast to reach 3.5 percent in 2024 and 2025—which is stronger than previously envisioned—as oil-exporting economies benefit from the unwinding of oil production cuts. In contrast, the outlook for oil-importing economies has deteriorated on account of weakening domestic conditions, including persistently high inflation. Risks to the outlook are tilted to the downside. Owing to the possibility of escalation in the conflict, potential benefits to oil exporters from higher oil prices, resulting from disruptions in commodity markets, would likely be more than offset by weakened regional activity. Other downside risks include climate-change-related weather shocks and adverse spillovers from further monetary policy tightening in advanced economies and tighter financial conditions.
Growth in South Asia (SAR) is expected to edge marginally lower from an estimated 5.7 percent last year to 5.6 percent in 2024—still the fastest pace among all emerging market and developing economy (EMDE) regions—and then firm to 5.9 percent in 2025. Growth in India is projected to remain strong, largely driven by robust investment and services. In other economies, the adverse effects of persistently high inflation and monetary and fiscal policy tightening, as well as policy uncertainty, will weigh on growth. Risks to the outlook are tilted to the downside, with the most pressing concerns being higher energy and food prices caused by the ongoing conflict in the Middle East and adverse spillovers from elevated policy rates in advanced economies. Risks of financial and fiscal stress, extreme weather events, slowing activity in China, and election-related uncertainty in some countries pose further downside risks for the region.
Growth in Sub-Saharan Africa (SSA) is projected to rebound to 3.8 percent in 2024 and 4.1 percent in 2025 as country-specific factors that have temporarily weighed on growth, including reduced fiscal support and metal-exporting economies’ adjusting to lower prices, gradually ease. Nevertheless, elevated costs of living continue to limit consumption growth, and political instability has increased in parts of the region. High debt burdens and interest rates have narrowed fiscal space and heightened financing needs. Despite the projected pickup in growth, increases in per capita incomes will remain inadequate to enable the region’s economies make significant progress in reducing extreme poverty. Risks to the baseline growth forecast remain tilted to the downside. 0ey include a further rise in global or regional instability, such as the possible escalation of the conflict in the Middle East, which could drive up global energy and food prices; a sharper-than-expected global economic slowdown; increased frequency and intensity of adverse weather events; and increased defaults if attempts to reduce elevated public debt burdens were to fail. Materialization of these risks would also exacerbate poverty and limit the ability of many countries to cope with climate change.
Investment powers economic growth, helps drive down poverty, and will be indispensable for tackling climate change and achieving other key development goals in emerging market and developing economies (EMDEs). Without further policy action, investment growth in these economies is likely to remain tepid for the remainder of this decade. But it can be boosted. This chapter offers the first comprehensive analysis of investment accelerations—periods in which there is a sustained increase in investment growth to a relatively rapid rate—in EMDEs. During these episodes over the past seven decades, investment growth typically jumped to more than 10 percent per year, which is more than three times the growth rate in other (non-acceleration) years. Countries that had investment accelerations often reaped an economic windfall: output growth increased by about 2 percentage points and productivity growth increased by 1.3 percentage points per year. Other benefits also materialized in the majority of such episodes: inflation fell, fiscal and external balances improved, and the national poverty rate declined. Most accelerations followed, or were accompanied by, policy shifts intended to improve macroeconomic stability, structural reforms, or both. These policy actions were particularly conducive to sparking investment accelerations when combined with well-functioning institutions. A benign external environment also played a crucial role in catalyzing investment accelerations in many cases.
Fiscal Policy in Commodity Exporters: An Enduring Challenge
Fiscal policy has been about 30 percent more procyclical and about 40 percent more volatile in commodity-exporting emerging market and developing economies (EMDEs) than in other EMDEs. Both procyclicality and volatility of fiscal policy—which share some underlying drivers—hurt economic growth because they amplify business cycles. Structural policies, including exchange rate flexibility and the easing of restrictions on international financial transactions, can help reduce both fiscal procyclicality and fiscal volatility. By adopting average advanced-economy policies regarding exchange rate regimes, restrictions on cross-border financial flows, and the use of fiscal rules, commodity-exporting EMDEs can increase their GDP per capita growth by about 1 percentage point every four to five years through the reduction in fiscal policy volatility. Such policies should be supported by sustainable, well-designed, and stability-oriented fiscal institutions that can help build buffers during commodity price booms to prepare for any subsequent slump in prices. A strong commitment to fiscal discipline is critical for these institutions to be effective in achieving their objectives.