The World Bank warns that 80% of nations will develop lower than earlier than the pandemic till 2026 | Economy | EUROtoday

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The world will spend greater than half of this decade burdened by the financial issues unleashed after the pandemic. Consequently, the group of nations that convey collectively 80% of the world's inhabitants and international Gross Domestic Product (GDP) will advance at a a lot slower tempo than within the decade earlier than Covid between now and 2026. That is the warning issued this Tuesday by the World Bank in its newest report on Global Economic Outlook. Projections point out that international GDP will common a development charge of two.7% this 12 months and the following two, nicely under the typical of three.1% recorded between 2010 and 2019 and clearly “insufficient to advance key objectives.” developmental”.

The “soft landing” of large economies has become the central scenario for those in charge of preparing forecasts. Central banks have managed to reduce inflation to its lowest level in three years without plunging them into a recession. This is why the World Bank has raised its GDP estimates for 2024 by two tenths compared to January, going from 2.4% to 2.6%, despite growing geopolitical tensions and high interest rates. But this slight improvement does not alter an overall picture that is gloomy. Medium-term growth is expected to be almost half a percentage point lower than the average recorded between 2010 and 2019, and the income gap between states is expected to widen. The projection is that per capita income in developing economies will increase on average by 3% in the next three years, eight tenths less than in the decade before the health crisis.

“More than four years after the disruptions of the pandemic and subsequent global shocks, it is clear that the world (particularly developing economies) has yet to rediscover a secure path to prosperity,” says the document issued by the organization. based in Washington. The clearest evidence that a delicate situation exists is that there are 75 States that will receive loans from the International Development Association—belonging to the World Bank—because they are incapable of facing the current situation without this international support.

Advanced economies, for their part, will continue with notable divergences. Weak activity in the euro zone and Japan – largely a result of continued weakness in domestic demand – will contrast with US resilience. While the American economy will grow by 2.5% in 2024, the community bloc will only grow by 0.7%. The reason is that, although the services sector has improved in Europe so far this year, its progress has been overshadowed by weaker than expected industrial activity, especially in the German manufacturing sector. Next year, on the other hand, it is possible that this difference will be less marked – rates of 1.8% and 1.4%, respectively, are expected – due to a projected slowdown in the world's leading economy and a resurgence of exports and investment in Europe, thanks to the reduction of interest rates and the fact that European funds will begin to bear fruit.

Longer-lasting inflation than expected

The report update highlights that inflation is declining at a slower pace than projected six months ago. The global ratio will close the year at 3.5% to reach 2.9% in 2025%. The CPI target of 2% imposed by central banks, added to these short-term perspectives, calls into question the change of direction in monetary policy that was taken for granted for this year. In fact, the Federal Reserve has moved away from the prospects for rate cuts that the entity itself anticipated only a month and a half ago, while investors have become increasingly pessimistic. It is the opposite path to that taken by the European Central Bank with its recent cut of 0.25 points. As short-term interest rates turn out to be higher than expected, bond yields will likely rise as well, which may be an additional drag on the activity rate. In addition, the lower risk appetite could further tighten financial conditions, according to the document.

Global trade also remains in a gray area. Although it will rebound to 2.5% this year – a significant improvement over 2023 – it is still well below the average rate observed in the two decades before the pandemic. The forecast details that the exchange of goods will play in favor of the large economies as inventories in the United States and the euro zone increase and demand from China stabilizes. However, services will continue at a much slower pace than that recorded before 2019, as will the capacity to assume all world production. For this reason, average raw material prices are expected to remain above pre-covid levels.

Fuel prices, which caused so many headaches after the Russian invasion of Ukraine, will rise again this year although without reaching the highs of 2022. In a context of continued geopolitical risks, it is forecast that the average price of Brent (the European reference for crude oil) rises to $84 per barrel, before falling back to $79 in 2025, in a context of partial elimination of OPEC+ supply cuts (the cartel of producing countries) and the rise of renewable fuels. Gas, for its part, will also rise. In Europe, average prices are recovering in the second quarter of the year, reflecting persistent supply risks related to ongoing conflicts. And that is why, despite the expected growth in US exports of liquefied natural gas (LNG), the cost of gas in the Old Continent is projected to increase by 11% in 2025, in parallel with the recovery of industrial activity.

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