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The global economy is in better shape than at the beginning of the year, thanks mainly to the economic performance of the USA, according to the World Bank’s latest forecast on Tuesday. However, the more optimistic outlook could be clouded if the major central banks – including the Federal Reserve – keep interest rates at a high level.

Global growth is expected to reach an annual rate of 2.6 percent this year, compared with a forecast of 2.4 percent in January, the bank said. The global economy is approaching a “soft landing” after recent price spikes, and average inflation has fallen to a three-year low amid sustained growth, economists at the bank said.

While Americans’ dissatisfaction with high prices remains a key weakness for President Biden’s re-election campaign, the World Bank now expects the U.S. economy to grow by 2.5 percent annually, almost a full percentage point more than forecast. in January. The United States is the only advanced economy whose growth is significantly faster than the bank expected at the beginning of the year.

“Overall, the global situation is better today than it was four or five months ago,” said Indermit Gill, chief economist at the World Bank. “This is due in large part to the resilience of the U.S. economy.”

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The bank cited “US momentum” as the reason the global economy has stabilized, despite the highest interest rates in years and wars in Ukraine and the Middle East. Employers added 272,000 jobs in May, beating analysts’ estimates, the Labor Department reported last week.

However, expected global growth this year and next will remain below the pre-pandemic average of 3.1 percent. Three out of four developing countries are now expected to grow more slowly than the bank’s January forecast, leaving them little hope of narrowing the income gap with richer countries.

Despite their largely optimistic tone, bank officials warned that central banks, including the Fed, would only slowly reverse the rate hikes of the past two years. That means global interest rates will remain high, averaging around 4 percent over the next two years, about twice the average over the past two decades. the pandemic.

Global inflation is expected to fall to 3.5 percent this year before falling to 2.9 percent next year. But the decline is proving slower than the bank expected. And any deterioration that prompts monetary authorities to delay lowering borrowing costs could reduce the forecast growth rates by 0.3 percentage points.

“This is a major risk for the global economy: interest rates will remain high for longer and the already weak growth outlook will become even weaker,” Gill said.

Bank officials also noted that global trade – which is heading into its weakest half-decade since the 1990s this year – is a cause for concern, with trading nations imposing more than 700 restrictions on trade in goods and nearly 160 barriers to trade in services through 2024.

“Trade-restrictive measures have skyrocketed. They have more than doubled since before the pandemic,” Gill said.

Rising protectionism could further slow the already modest growth of the global economy. The broad acceptance by many countries of import tariffs and industrial subsidies that encourage domestic production could further restrict trade flows that are already under pressure from the US-China rivalry and other geopolitical risks.

“The world could get stuck in the fast lane,” said Ayhan Kose, the bank’s deputy chief economist.

Among those likely to suffer if interest rates remain high for a long time are the 40 percent of developing countries facing a debt crisis. Many of them have taken on heavy debt to finance pandemic-related health care and then to cover food and fertilizer costs that have soared after the war in Ukraine.

They have little immediate prospect of debt relief and now risk losing trade gains as larger economies turn inward, Gill said.

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