Global Economic Prospects Report 2024 and South Asia

Why in news?

• The World Bank’s Global Economic Prospects report forecasts global growth to hold steady at 2.6% in 2024, with a slight increase to an average of 2.7% in 2025-26.
• These projections mark a deceleration compared to the pre-COVID-19 decade’s average growth rate of 3.1%. This blog delves into the key aspects of the report, focusing on regional growth trends in South Asia, India’s economic trajectory, and inflation dynamics, alongside a brief overview of the World Bank’s role.

Key Highlights of the Global Economic Prospects Report

Global Growth Outlook

• The global economy is set to expand at a modest pace of 2.6% in 2024, with a slight uptick to an average of 2.7% in 2025-26.
• This growth rate remains subdued compared to the pre-pandemic decade’s average of 3.1%. Several factors contribute to this slower growth, including lingering impacts of the pandemic, geopolitical tensions, and tightening financial conditions.
• Despite these challenges, the report indicates a gradual stabilization in economic activity globally.

Regional Growth Trends in South Asia

• South Asia’s growth is projected to decelerate from 6.6% in 2023 to 6.2% in 2024, driven largely by a moderation in India’s economic expansion.
• Nonetheless, the region is expected to sustain a 6.2% growth rate in 2025-26.
• While India remains the anchor of regional growth, other economies such as Bangladesh, Pakistan, and Sri Lanka are poised for robust expansion, albeit with varying growth rates.

India: A Major Economic Driver

India is forecasted to remain the fastest-growing major economy, with an anticipated steady growth rate of 6.7% over the next three years. This growth is underpinned by resilient investment and consumption dynamics. For the fiscal year 2023/24, India’s growth is estimated at a remarkable 8.2%, significantly higher than earlier projections. Key factors include a strong recovery in agricultural production and declining inflation rates, which are expected to bolster private consumption.

Investment and Consumption in India

India’s investment growth, though slowing from its previous highs, remains robust. The country’s public and private investments continue to provide a solid foundation for economic growth. Meanwhile, private consumption is set to benefit from improved agricultural outputs and moderating inflation, contributing positively to the overall economic outlook. Government consumption, on the other hand, is expected to grow at a slower pace as efforts are made to reduce current expenditures relative to GDP.

Global and Regional Inflation Trends

• Global inflation is expected to moderate to 3.5% in 2024, decreasing further to 2.9% in 2025.
• This decline, although slower than previously anticipated, reflects ongoing efforts by central banks to manage inflationary pressures.
• Global interest rates are likely to average around 4% over 2025-26 as central banks remain cautious about easing policy rates.
• In South Asia, inflation trends vary. In India, inflation has stayed within the Reserve Bank’s target range of 2 to 6% since September 2023, thanks to effective monetary policies and improved agricultural output. However, other parts of the region continue to grapple with high inflation due to persistent food price increases and rising energy costs.

The Role of the World Bank

• Founded in 1944 at the Bretton Woods Conference, the World Bank has played a pivotal role in global development.
• With its headquarters in Washington, D.C., and a membership comprising 189 countries, the institution provides financial and technical assistance to support development projects worldwide.

Functions of the World Bank

• Financial Assistance: Offers loans, grants, and credits to governments for a variety of development projects.
• Technical Assistance: Provides expertise and knowledge to support effective project implementation.
• Research and Analysis: Conducts extensive research on global economic issues and offers policy advice.
• Promotes Global Partnerships: Collaborates with governments, international organizations, and civil society to achieve development goals.

Key Features and Development Goals

• The World Bank is committed to several core objectives aimed at improving global well-being:
  • Abolishing extreme poverty and hunger.
  • Ensuring universal primary education.
  • Promoting gender equality.
  • Reducing child mortality.
  • Enhancing maternal health.
  • Combating HIV/AIDS, malaria, and other diseases.
  • Promoting environmental sustainability.
  • Establishing global partnerships for development.

Structure of the World Bank

• The World Bank comprises five primary institutions:
  • International Bank for Reconstruction and Development (IBRD): Provides loans and financial products to middle-income and creditworthy low-income countries.
  • International Development Association (IDA): Offers grants and low- to zero-interest loans to the world’s poorest countries.
  • International Finance Corporation (IFC): Focuses on private sector development, providing investment and advisory services.
  • Multilateral Investment Guarantee Agency (MIGA): Provides political risk insurance to encourage foreign investment.
  • International Centre for Settlement of Investment Disputes (ICSID): Offers arbitration and conciliation services for investment disputes.

South Asia’s Economic Prospects: A Closer Look

India’s Economic Resilience

• India’s economy stands out for its robust growth trajectory, with an estimated expansion of 6.7% over the next three years.
• This growth is supported by several factors:
  • Investment: Continued strength in public and private investment, particularly in infrastructure and digital sectors.
  • Consumption: A recovery in agricultural production and easing inflation are expected to boost private consumption.
  • Policy Stability: Efforts to maintain fiscal discipline while fostering economic growth through supportive policies.

Challenges and Opportunities

Navigating Inflation and Interest Rates

• A major challenge for global and regional economies is managing inflation and interest rates.
• While global inflation is projected to moderate, central banks face the delicate task of balancing rate adjustments to avoid stifling growth.
• For South Asia, high food prices and energy costs continue to be significant concerns, necessitating targeted policy interventions to mitigate inflationary pressures.

Leveraging Investment for Sustainable Growth

• Investment remains a crucial driver of economic growth, especially in developing regions.
• In India and other South Asian countries, maintaining a conducive environment for both public and private investment is essential for sustained economic progress.
• This includes investing in infrastructure, technology, and human capital to enhance productivity and competitiveness.

Embracing Policy Reforms and Innovations

• Policy reforms and innovations play a vital role in fostering economic resilience.
• For South Asia, implementing structural reforms, improving governance, and enhancing regulatory frameworks are key to addressing economic vulnerabilities and promoting inclusive growth.

Conclusion

• The World Bank’s Global Economic Prospects report highlights a steady yet cautious global growth outlook, with significant regional variations. South Asia, led by India, continues to demonstrate resilience amid slower growth trends.
• Managing inflation, leveraging investment, and embracing policy reforms are crucial for navigating future economic challenges and opportunities.
• As the region strives for sustainable growth, the support and insights provided by institutions like the World Bank remain invaluable in guiding economic development and enhancing global prosperity.

People also ask

Q1 :  What does the Global Economic Prospects report cover?
Ans : The Global Economic Prospects report provides detailed analysis and projections of global economic trends, regional growth patterns, and specific country outlooks. It also examines factors influencing economic growth, such as inflation, investment, and consumption.

Q2 : What is the projected global growth rate for 2024?
Ans : The global economy is expected to grow at a rate of 2.6% in 2024, with a slight increase to an average of 2.7% in 2025-26.