"Global Economy Stabilizes, But Developing Economies Face Tougher Slog

" Global Economy Stabilizes, But Developing Economies Face Tougher Slog - World Bank \r\n\r\nDeveloping economies\u2014which fuel 60 percent of global growth\u2014are projected to finish the first quarter of the 21st century with the weakest long-term growth outlook since 2000, according to the World Bank\u2019s latest \u00a0Global Economic Prospects \u00a0report.\r\n\r\nEven as the global economy stabilizes in the next two years, developing economies are expected to make slower progress in catching up with the income levels of advanced economies.\r\n\r\nThe global economy is projected to expand by 2.7% in both 2025 and 2026, the same pace as in 2024, as inflation and interest rates decline gradually. Growth in developing economies is also expected to hold steady at about 4% over the next two years.\r\n\r\nThis, however, would be a weaker performance than before the pandemic\u2014and insufficient to foster the progress necessary to alleviate poverty and achieve wider development goals.\r\n\r\nThe World Bank\u2019s analysis is its first systematic assessment of the performance of developing economies in the first quarter of the 21st century. It finds that, during the first decade, developing economies grew at the fastest clip since the 1970s.\r\n\r\nYet progress ebbed after the Global Financial Crisis of 2008-09. Global economic integration faltered: as a share of GDP, foreign direct investment (FDI) inflows into developing economies are at about half the level of the early 2000s. New global trade restrictions in 2024 were five times the 2010-19 average. As a result, overall economic growth dropped\u2014from 5.9% in the 2000s to 5.1% in the 2010s to 3.5% in the 2020s.\r\n\r\nSince 2014, with the exception of China and India, the average per capita growth rates of income in developing economies have been half a percentage point lower than that in wealthy economies, widening the rich-poor gap.\r\n\r\n\u201cThe next 25 years will be a tougher slog for developing economies than the last 25,\u201d said\u00a0Indermit Gill, the World Bank Group\u2019s Chief Economist and Senior Vice President for Development Economics. \u201cMost of the forces that once aided their rise have dissipated. In their place have come daunting headwinds: high debt burdens, weak investment and productivity growth, and the rising costs of climate change. In the coming years, developing economies will need a new playbook that emphasizes domestic reforms to quicken private investment, deepen trade relations, and promote more efficient use of capital, talent and energy.\u201d\r\n\r\nDeveloping economies are more important for the global economy than they were at the start of the century. They account for about 45% of global GDP, up from 25% in 2000. Their interdependence has also grown: more than 40% of their goods exports go to other developing economies, double the share in 2000.\r\n\r\nDeveloping economies have also become an important source of global capital flows, remittances, and development assistance to other developing economies: between 2019 and 2023, they accounted for 40% of global remittances\u2014up from 30% in the first decade of the century.\r\n\r\nAs a result, these economies now have greater sway on growth and development outcomes in other developing economies. For example, an increase of 1 percentage point in the GDP growth of the three largest developing economies\u2014China, India, and Brazil\u2014tends to result in a cumulative GDP boost of nearly 2% in other developing economies after three years.\r\n\r\nThose effects, however, are only about half the effect of growth in the three biggest economies: the United States, the euro area, and Japan. The welfare of developing economies, in short, is still strongly tied to growth in the big three advanced economies.\r\n\r\n\u201cIn a world shaped by policy uncertainty and trade tensions, developing economies will need bold and far-reaching policies to seize untapped opportunities for cross-border cooperation,\u201d said\u00a0M. Ayhan Kose, the World Bank\u2019s Deputy Chief Economist and Director of the Prospects Group.\u00a0\u201cA good start would be to pursue strategic trade and investment partnerships with the rapidly expanding markets of other developing nations. Modernizing transportation infrastructure and standardizing customs processes are critical steps to cut unnecessary expenses and foster greater trade efficiency. Finally, sound macroeconomic policies at home will fortify their capacity to navigate the uncertainties of the global outlook.\"\r\n\r\nOver the next two years, developing economies could face serious headwinds, the report notes. High global policy uncertainty could undercut investor confidence and constrain financing flows. Rising trade tensions could reduce global growth.\r\n\r\nPersistent inflation could delay expected cuts in interest rates. Yet the global economy could also do better than expected\u2014especially if its largest engines, the United States and China, manage to gain steam. In China, additional stimulus measures could boost demand.\r\n\r\nIn the United States, robust household spending could result in stronger-than-expected growth, with beneficial effects for developing economies.\r\n\r\nThe report argues that developing economies have many options to improve their growth prospects, despite the headwinds. With the right policies, these economies can even transform some challenges into significant opportunities.\r\n\r\nAddressing infrastructure needs, speeding up the climate transition, and improving human capital can improve growth prospects while also helping to achieve climate and development goals. All countries, meanwhile, should work together to strengthen global trade governance, with the support of multilateral institutions.\r\n\r\n "

"Global Economy Stabilizes, But Developing Economies Face Tougher Slog

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