Global inflation is projected to moderate to 3.5% in 2024, with a further decline to 2.8% by 2026, aligning with central bank targets. However, inflation remains elevated, especially in Emerging Market and Developing Economies (EMDEs), where it is expected to reach 4.0% in 2024 before easing to 3.5% by 2026. Persistent inflationary pressures are driven by high energy and food prices, geopolitical tensions, and supply chain disruptions. Core inflation, particularly in the services sector, remains stubborn, requiring cautious global monetary policies, with interest rates projected to stay elevated through 2026.
1. Global Inflation Trends
- Global inflation is expected to moderate gradually, with an average of 3.5% in 2024, down from the high levels seen during the COVID-19 pandemic recovery. However, this pace of disinflation is slower than previously anticipated.
- By 2026, global inflation is projected to stabilize around 2.8%, which is broadly consistent with central bank targets.
2. Regional Inflation Dynamics
- Advanced Economies: Inflation in advanced economies is expected to decline gradually but will remain above pre-pandemic levels for some time. Central banks are likely to continue cautious monetary policies.
- In the United States, inflation is expected to ease but remain slightly elevated, especially in the services sector.
- The Euro Area is experiencing a slower inflation decline due to higher energy and food prices.
- Emerging Market and Developing Economies (EMDEs): Inflation in EMDEs is projected to slow down, but persistent price pressures, particularly in food and energy, will keep inflation higher than desired.
- EMDEs will see inflation converge toward 4.0% in 2024 and 3.5% by 2026.
- In Sub-Saharan Africa, inflation is expected to remain higher due to commodity price volatility and supply constraints.
3. Core Inflation
- Core inflation (which excludes volatile items like food and energy) remains stubbornly high in many economies, driven by strong growth in services prices. This is particularly true in the United States and other advanced economies.
- Service sector inflation is slower to recede because of ongoing wage pressures and sticky prices in areas like housing and healthcare.
4. Factors Contributing to Persistent Inflation
- Geopolitical tensions and supply chain disruptions continue to create price volatility, especially in commodities like oil and gas.
- High energy prices have put upward pressure on inflation, although energy prices are expected to stabilize gradually.
- Food inflation remains a concern, especially in developing economies. Fluctuations in global grain supplies and climate-related disruptions contribute to price spikes.
5. Commodity Prices and Inflation
- Oil prices are projected to remain slightly elevated in 2024, averaging $84 per barrel, contributing to inflationary pressures in energy-dependent regions.
- Agricultural prices, including food commodities, are expected to stabilize, but ongoing supply chain issues and climate disruptions could trigger temporary inflationary spikes.
6. Monetary Policy and Inflation Control
- Central banks in both advanced and developing economies are expected to remain cautious about easing monetary policies due to persistent inflationary pressures.
- Interest rates are expected to stay elevated for an extended period. Global policy rates are forecast to average around 4% through 2026, which is double the average of the previous two decades.
- EMDEs face the challenge of balancing inflation control with supporting economic growth. Inflation targeting and careful monetary policy management remain crucial.
7. Risks to Inflation
- There is a risk that inflation may persist longer than expected due to several factors:
- Geopolitical tensions could lead to further supply disruptions, especially in energy markets.
- Trade fragmentation and rising protectionism could lead to price increases for goods.
- Climate-related natural disasters could disrupt food production, leading to spikes in food prices.
Key Figures:
- Global inflation: Expected at 3.5% in 2024, moderating to 2.8% by 2026.
- Advanced economies: Expected inflation is lower but will stabilize around 2.5% by 2026.
- EMDEs: Inflation projected at 4.0% in 2024, gradually declining to 3.5% by 2026.
- Oil prices: Forecast to average $84 per barrel in 2024, impacting energy-dependent economies.
Summary:
- Global inflation is moderating but remains elevated, particularly in emerging markets and developing economies.
- Inflation pressures from energy and food prices are expected to ease gradually, but geopolitical risks and supply disruptions could trigger temporary inflationary spikes.
- Core inflation, particularly in services, remains persistent, necessitating cautious monetary policies by central banks globally.
Source: The Global Economic Prospects June 2024 report
Global growth is projected to stabilize at 2.6% in 2024, with only a slight rise to 2.7% by 2026, falling below the pre-pandemic average of 3.1%. Advanced economies are expected to grow by 1.5% in 2024, while Emerging Markets and Developing Economies (EMDEs) will see 4.0% growth, driven by regions like South Asia, with India leading at 6.6%. Low-income countries are forecasted to grow by 5.0% in 2024. Key risks include geopolitical tensions, high interest rates, and debt stress, particularly for EMDEs, which may hinder recovery.
1. Global Growth Overview
- Global GDP Growth is expected to stabilize at 2.6% in 2024 before increasing slightly to 2.7% in 2025-2026. This is significantly below the pre-pandemic average growth rate of 3.1% from 2010-2019.
- By 2026, 80% of the world’s population will be living in countries where growth is slower than before COVID-19.
2. Advanced Economies
- Growth in advanced economies is projected to be subdued, with an average growth of 1.5% in 2024 and increasing slightly to 1.7% in 2025. These figures are below the historical average of 2.0% for advanced economies.
- United States: Expected to grow by 2.5% in 2024, driven by resilient domestic demand and investment.
- Euro Area: Forecast to grow by only 0.7% in 2024, reflecting challenges from high inflation and energy prices.
- Japan: Growth is projected at 0.7% in 2024, slightly lower due to weak demand.
3. Emerging Markets and Developing Economies (EMDEs)
- Growth in EMDEs is forecast to slow slightly to 4.0% in 2024 and remain steady at 4.0% in 2025-2026, below the 4.5% average of the previous decade.
- East Asia and Pacific: Growth is forecast at 4.8% in 2024, with China slowing to 4.8% due to weaker property sector demand.
- South Asia: Led by India, this region is expected to grow at 6.2% in 2024, with India alone forecast to expand at 6.6%, making it one of the fastest-growing regions.
- Sub-Saharan Africa: Projected to grow at 3.5% in 2024, and expected to rise to 4.0% by 2026.
4. Growth in Low-Income Countries (LICs)
- Low-income countries are projected to grow at 5.0% in 2024, up from 3.8% in 2023, as they recover from commodity price shocks.
- However, many low-income countries will remain poorer than pre-pandemic levels, and per capita income growth is expected to be just 3.0%.
5. Global Growth Risks
- Geopolitical tensions, elevated global interest rates, and persistent inflation remain significant risks to global growth.
- About 40% of EMDEs are highly vulnerable to debt-related stress, which could hamper growth if global financial conditions tighten.
Key Takeaways:
- Global growth remains below historical norms, with 2.6% expected in 2024, and 80% of the world’s economies will grow slower than before COVID-19.
- The U.S. and India are bright spots in the global economy, while growth in China and Eurozone is slowing.
Source: Global Economic Prospects June 2024 report
Global growth faces multiple risks, including geopolitical tensions, which may disrupt trade and raise energy prices beyond $84 per barrel in 2024. Trade fragmentation could slow expected trade growth to below 2.5%, while persistent inflation, projected at 3.5% in 2024, might force central banks to maintain high interest rates of around 4% through 2026, dampening investment. Additionally, 40% of EMDEs are at risk of debt distress, with tightening global financing further constraining growth. Climate-related disasters and slower growth in key economies, like China, also pose significant threats to recovery. Conversely, faster disinflation and stronger U.S. growth offer potential upside.
1. Geopolitical Tensions
- Geopolitical risks remain a significant factor that could destabilize global growth. Escalating tensions, especially in areas like the Middle East and Eastern Europe, could lead to increased volatility in commodity prices, particularly energy.
- Disruptions in the supply of oil could push prices higher than the projected $84 per barrel in 2024, dampening global economic activity.
- Geopolitical conflicts can disrupt global trade networks and heighten uncertainty, which has already reached historically high levels in recent years due to trade restrictions and sanctions.
2. Trade Fragmentation
- Trade fragmentation and rising protectionism continue to threaten global trade. Trade policy uncertainty in major economies has reached its highest level since 2000, partly due to elections and new trade measures aimed at restraining cross-border flows.
- Trade growth is expected to recover moderately to 2.5% in 2024, but further trade barriers could reduce this significantly.
- A breakdown in global supply chains, especially in critical sectors such as semiconductors and energy, could cause delays and price increases that slow down production and economic recovery.
3. Inflationary Pressures
- Persistent inflationary pressures, especially in core areas like services, pose a risk to growth, as central banks may need to maintain tight monetary policies for longer.
- Global inflation is forecast at 3.5% in 2024, but if inflationary trends continue to be more stubborn than anticipated, central banks might delay easing interest rates.
- Higher-than-expected inflation could lead to continued high global interest rates (expected to remain around 4% through 2026, double the previous two decades' average), dampening investment and consumer spending.
4. Higher-for-Longer Interest Rates
- The risk of higher-for-longer interest rates could further slow down global activity. Monetary policy rates in advanced economies, especially in the United States and Europe, are expected to stay elevated as long as inflationary pressures persist.
- This is particularly problematic for emerging market and developing economies (EMDEs), as it increases borrowing costs and leads to capital outflows. EMDE borrowing costs remain high, with about 40% of EMDEs vulnerable to debt-related stress.
- If interest rates remain high, global growth could deviate downward by 0.3-0.5 percentage points over the next two years, and investments could suffer.
5. Debt Vulnerability and Fiscal Stress
- Many countries, particularly low-income countries (LICs) and EMDEs, are facing elevated levels of debt distress. The report highlights that around 40% of EMDEs are at high risk of debt-related stress.
- As global financing conditions tighten, servicing this debt will become more difficult, constraining governments’ ability to invest in growth-stimulating projects.
- Public investment could be significantly reduced as countries try to balance fiscal sustainability with their debt obligations.
6. Climate-Related Natural Disasters
- Increasing frequency of climate-related natural disasters could severely impact growth, especially in vulnerable regions like Sub-Saharan Africa and small island developing states.
- These disasters can disrupt agriculture, infrastructure, and production chains, leading to output losses and exacerbating food insecurity.
- Food prices could spike if global agricultural supply chains are hit by extreme weather events, with potentially significant implications for inflation in vulnerable economies.
- The report emphasizes that climate-related risks can stall or even reverse the progress made in disinflation efforts.
7. Slower Growth in Key Economies
- Weaker-than-anticipated growth in key economies, such as China, poses a significant downside risk to global growth.
- China’s growth is expected to slow to 4.8% in 2024, and any deeper or more prolonged downturn in China’s property market or overall economy could negatively impact commodity-exporting countries that depend on Chinese demand.
- A more severe slowdown in advanced economies, such as the Eurozone (projected to grow at only 0.7% in 2024), could drag down global trade and investment.
8. Upside Risk: Faster Disinflation and Stronger Growth in the U.S.
- On the upside, faster-than-expected disinflation could occur if global supply chains recover more quickly, or if there is more progress in technological adoption that improves productivity.
- In such a scenario, central banks could ease monetary policy faster, leading to a stronger growth outlook, particularly in advanced economies.
- U.S. growth could outperform expectations if labor force participation continues to rise and investment in technology-driven sectors remains strong.
Key Figures:
- Global inflation: Forecast at 3.5% in 2024, but inflation risks remain high due to ongoing supply chain disruptions and persistent service sector inflation.
- Interest rates: Expected to average 4% through 2026, but could stay higher if inflation remains stubborn.
- 40% of EMDEs are vulnerable to debt-related stress, which could slow down growth if financial conditions tighten
- Trade growth: Projected at 2.5% in 2024, but fragmentation and geopolitical tensions could reduce this further.
Summary of Risks to Global Growth:
- Geopolitical tensions and trade fragmentation are critical risks that could disrupt global supply chains and trade flows.
- Inflation remains a major concern, with the possibility of persistent inflation forcing central banks to maintain high interest rates, which could dampen investment and growth.
- Debt vulnerability in EMDEs and climate-related disasters pose significant challenges, while slower-than-expected growth in key economies like China could impact global demand for commodities.
- On the upside, faster disinflation and stronger growth in the U.S. could help mitigate some of the risks, improving the global growth outlook.
Source: Global Economic Prospects June 2024 report
Global growth is projected to stabilize at 2.6% in 2024, rising to 2.7% by 2025-2026, which is slower than the pre-COVID average of 3.1%. Emerging Market and Developing Economies (EMDEs) are forecasted to grow at 4.0% in 2024, with Sub-Saharan Africa growing at 3.5%. Global inflation is expected to moderate to 3.5%, though it will remain above pre-pandemic levels, especially in EMDEs. Oil prices are set to average $84 per barrel in 2024, while non-energy commodity prices remain stable. Risks to growth include geopolitical tensions and high debt distress in 40% of EMDEs.
- Global Growth:
- Global GDP growth is projected to stabilize at 2.6% in 2024, with an expected increase to 2.7% in 2025-2026. This growth is slower than the 3.1% average in the decade before COVID-19.
- By 2026, 80% of the world’s population will experience slower growth compared to pre-pandemic levels.
- Regional Growth:
- Emerging Market and Developing Economies (EMDEs) are forecast to grow at 4.0% in 2024, down from 4.2% in 2023. China’s growth is expected to slow to 4.8% in 2024.
- Sub-Saharan Africa is expected to grow at 3.5% in 2024, with a rise to 4.0% in 2026.
- Global Inflation:
- Inflation is projected to moderate to 3.5% globally in 2024, but it will remain higher than pre-pandemic levels.
- Inflation in EMDEs is expected to decline but will remain challenging for many regions due to commodity price fluctuations.
- Commodity Prices:
- Oil prices are projected to be slightly higher in 2024, averaging $84 per barrel, but lower than 2023 prices.
- Prices for non-energy commodities are expected to remain stable.
- Risks to Global Growth:
- Escalating geopolitical tensions and trade fragmentation pose significant risks to global growth.
- Debt distress risks remain high for 40% of EMDEs, with many economies vulnerable to shocks.
Source: Global Economic Prospects June 2024 report