Global growth stabilising albeit at weaker pace

Global growth is projected to stabilise at 2.6% this year, holding steady for the first time in three years despite flaring geopolitical tensions and high interest rates.It is then expected to edge up to 2.7% in 2025-26 amid modest growth in trade and investment.On the other hand, global inflation is projected to moderate — but at a slower clip than previously assumed, averaging 3.5% this year, according to the World Bank.Given continued inflationary pressures, central banks in both advanced economies and emerging market and developing economies (EMDEs) will likely remain cautious in easing monetary policy.Average benchmark policy interest rates over the next few years are expected to remain about double the 2000-19 average, the World Bank said in a recent report.Despite an improvement in near-term growth prospects, the outlook remains subdued by historical standards in advanced economies and EMDEs alike. Global growth over the forecast horizon is expected to be nearly half a percentage point below its 2010-19 average pace. In 2024-25, growth is set to underperform its 2010s average in nearly 60% of economies, representing more than 80% of global population and world output.MDE growth is forecast to moderate from 4.2% in 2023 to 4% in both 2024 and 2025. Prospects remain especially lacklustre in many vulnerable economies—over half of economies facing fragile- and conflict-affected situations will still be poorer by the end of this year than on the eve of the pandemic.Escalating geopolitical tensions could lead to volatile commodity prices, while further trade fragmentation risks additional disruptions to trade networks.Already, trade policy uncertainty has reached exceptionally high levels compared to other years that have featured major elections around the world since 2000.The persistence of inflation could lead to delays in monetary easing. A higher-for-longer path for interest rates would dampen global activity. Some major economies could grow more slowly than currently anticipated due to a range of domestic challenges.Additional natural disasters related to climate change could also hinder activity, the World Bank says. On the upside, global inflation could moderate more quickly than assumed in the baseline, enabling faster monetary policy easing.In addition, growth in the United States could be stronger than expected.Against this backdrop, decisive global and national policy efforts are needed to meet pressing challenges.At the global level, priorities include safeguarding trade, supporting green and digital transitions, delivering debt relief, and improving food security.At the national level, persistent inflation risks underscore the need for EMDE monetary policies to remain focused on price stability. High debt and elevated debt-servicing costs will require policy makers to seek ways to sustainably boost investment while ensuring fiscal sustainability.To meet development goals and bolster long-term growth, structural policies are needed to raise productivity growth, improve the efficiency of public investment, build human capital, and close gender gaps in the labour market.Global cooperation is needed to safeguard trade, support green and digital transitions, deliver debt relief, and improve food security.Comprehensive fiscal reforms are essential to address ongoing fiscal challenges, particularly in small states, including those arising from heightened exposure to external shocks.