World Bank Warns of ‘Decade of Wasted Opportunity’ for Post-Pandemic Global Economy

A participant stands near a logo of World Bank at the International Monetary Fund—World Bank Annual Meeting in Nusa Dua, Bali, Indonesia, on Oct. 12, 2018. (Johannes P. Christo/Reuters)

The global economy is poised to endure its worst half-decade of growth in 30 years as the world potentially faces a “decade of wasted opportunity,” the World Bank warned in a new “Global Economic Prospects” report.

Global growth is forecast to slow for the third consecutive year, sliding to 2.4 percent in 2024 from 2.6 percent in 2023. That’s nearly three-quarters of a percentage point below the previous decade’s average.

Overall, in the five years through 2024, global economic activity will record the weakest performance since the 1990s, described by the institution as a “wretched milestone.”

Growth in advanced economies is expected to slow to 1.2 percent, from 1.5 percent in 2023. In the United States, gross domestic product (GDP) is estimated to be 1.6 percent. The Japanese economy is projected to grow by less than 1 percent.

Twenty countries that use the euro currency are forecast to report 0.7 percent growth this year.

Developing markets are predicted to expand by 3.9 percent, about 1 percentage point below the average of the 2010s. China, the world’s second-largest economy, is forecast to record 4.5 percent growth in the year ahead.

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Additionally, low-income nations are anticipated to grow by 5.5 percent, weaker than previous projections.

By the end of the year, about one-quarter of people in developing countries and roughly 40 percent of individuals in low-income countries will be poorer than they were on the eve of the coronavirus pandemic.

While the international economy is better positioned than a year ago—mainly because recession odds have been reduced—the medium-term outlook “has darkened” due to anemic worldwide trade, tighter financial conditions, and mounting geopolitical tensions.

“Without a major course correction, the 2020s will go down as a decade of wasted opportunity,” Indermit Gill, the World Bank Group’s chief economist and senior vice president, said in the report.

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

Mr. Gill noted that there are plenty of opportunities to avert disaster, but only if “governments act now to accelerate investment and strengthen fiscal policy frameworks.”

Other predictions for the year ahead from the World Bank include global inflation slowing to 3.7 percent this year and 3.4 percent in 2025, above the pre-crisis average from 2015 to 2019. Moreover, international trade in goods and services will climb by 2.3 percent in 2024, according to the report.

End of a ‘Transformative Decade’

The 2020s were widely expected to be a “transformative decade” to tackle a plethora of pressing issues, from grappling with extreme poverty to “fighting climate change.” However, advanced and developing governments experienced rampant inflation, tighter monetary policy, and immense fiscal imbalances because of the coronavirus pandemic.

But this could be reversed through bolstered investment efforts, particularly in energy transition, and strengthened fiscal policy frameworks.

Developing economies can “implement comprehensive policy packages to improve fiscal and monetary frameworks, expand cross-border trade and financial flows, improve the investment climate, and strengthen the quality of institutions,” said Ayhan Kose, deputy chief economist of the World Bank and director of the Prospects Group.

“That is hard work, but many developing economies have been able to do it before. Doing it again will help mitigate the projected slowdown in potential growth in the rest of this decade.”

Meltdown Averted

The U.S., European, and global economies have faced multiple shocks since the pandemic, including multi-decade-high inflation, bank failures, Russia’s invasion of Ukraine, and soaring borrowing costs. Yet, the world has proved far more resilient than many had anticipated in averting an economic collapse.

Federal Reserve Chairman Jerome Powell prepares to deliver remarks to the Federal Reserve's Division of Research and Statistics Centennial Conference in Washington on Nov. 8, 2023. (Chip Somodevilla/Getty Images)

Despite the Federal Reserve raising interest rates 11 times to their highest levels in more than two decades, the U.S. economy has averted a sharp downturn. But conditions are widely anticipated to decelerate in 2024 as the lagging effects of the Fed’s quantitative tightening campaign seep into the broader economy.

White House officials believe that the country achieved the soft-landing objective.

Following last week’s December jobs report, Treasury Secretary Janet Yellen told CNN that she thinks the present economic landscape could be best described as a soft landing.

“The American people did it,” Ms. Yellen said. “The American people go to work every day, participate in the labor market, form new businesses. But President [Joe] Biden has tried to create incentives that give Americans the tools they need to help this economy grow.”

Still, the debate rages whether the United States officially enters a soft landing or slips into a recession.

“All of the risk for 2023 was a recession. We didn’t get it. I think that’s absolutely still the question of 2024,” Jeff Klingelhofer, the co-head of investments at Thornburg Investment Management, said in a note.

Jim Besaw, the founding principal at GenTrust, thinks “the odds of a recession are higher than the market believes.”

Early estimates from the New York Fed’s Nowcast suggest that the first quarter of 2024 could see a real GDP growth rate of 2.7 percent.