Monday, May 20

The World Bank warns of a rise in energy prices if war spreads in the Middle East

The global economy is at risk of a “wasted” decade and the weakest growth period in 30 years, the World Bank warned on Tuesday, saying a slow recovery from the pandemic and crippling wars in Ukraine and the Middle East are expected to weigh heavily. output.

In its semi-annual Global Economic Prospects report, the World Bank forecasts that global output growth will slow further in 2024, falling from 2.6% to 2.4%. While the global economy has been surprisingly resilient, the report warns that its forecasts are subject to greater uncertainty due to the two wars, the weakness of the Chinese economy and the growing risks of natural disasters caused by global warming.

The converging crises of recent years have put the world economy on track for the weakest half-decade in 30 years.

“Without a major course correction, the 2020s will go down in history as a decade of wasted opportunities,” said Idermit Gill, chief economist at the World Bank Group.

Global growth is expected to slow for a third consecutive year in 2024. Developing countries are bearing the brunt of the slowdown, with high financing costs and anemic trade volumes weighing on their economies.

Although policymakers have made progress in reducing inflation from its 2022 peak level, the war in Gaza between Israel and Hamas threatens to become a broader conflict that could spur a new wave of price increases by sending the cost of oil soaring and of food.

“Recent conflict in the Middle East, on top of the Russian Federation’s invasion of Ukraine, has increased geopolitical risks,” the report said. “Escalatory conflict could lead to higher energy prices, with broader implications for global activity and inflation.”

Signs of fragility in the Chinese economy also continue to cause concern. World Bank economists have pointed to persistent weakness in China’s real estate sector and weak consumer spending as evidence that the world’s second-largest economy will continue to underperform this year. They suggested this could pose a hindrance to some of China’s trading partners in Asia.

China’s growth is expected to slow to 4.5% this year from 5.2% in 2023. Outside of the pandemic-induced recession, it would be China’s slowest expansion in 30 years.

Europe and the United States are also poised for another year of weak production in 2024.

The World Bank expects economic growth in the euro area to rise to 0.7% in 2024 from 0.4% in 2023. Despite easing inflation and rising wages, credit conditions are expected restrictive measures will limit economic activity.

Growth in the United States is expected to slow to 1.6% this year from 2.5% in 2023. The World Bank attributes the slowdown to high interest rates – which are at their highest level in 22 years – and to a decline in public spending. Businesses are expected to be cautious in investing due to economic and political uncertainty, including ahead of the 2024 elections.

Despite such slow growth, Biden administration officials say they deserve credit for stemming inflation while keeping the economy afloat.

“I think we’ve made tremendous progress,” Treasury Secretary Janet L. Yellen told reporters Monday. “It’s very unusual to have a period where inflation drops this much while the job market remains strong.”

He added: “But that’s what we’re seeing, and that’s why I say we’re enjoying a soft landing.”