HIGHLIGHTS from Chapter 1:

THE GLOBAL OUTLOOK

Key Points
• Global growth is projected to hold steady at 2.6 percent this year, despite flaring
geopolitical tensions and high interest rates, before edging up to 2.7 percent in 2025-26
alongside modest expansions of trade and investment.
• Despite improvements in near-term growth prospects, the outlook is subdued. In 2024-25,
growth is set to underperform its 2010s average in nearly 60 percent of economies,
representing more than 80 percent of global output and population.
• Global inflation is projected to moderate at a slower clip than previously assumed,
averaging 3.5 percent this year. Reflecting continued inflationary pressures, central banks
are likely to remain cautious in easing policy.
• The shocks of recent years have impeded per capita income catch-up, with almost half of
EMDEs losing ground relative to advanced economies over 2020-24. Amid elevated levels
of conflict, prospects remain especially lackluster in many vulnerable economies.
• Risks have become somewhat more balanced, but downside risks still predominate,
including geopolitical tensions, trade fragmentation, higher-for-longer interest rates amid
persistent inflation, and climate-change-related natural disasters.
• Global policy efforts are needed to safeguard trade, support green and digital transitions,
deliver debt relief, and improve food security.
• High debt and elevated debt-servicing costs will require EMDE policy makers to balance
sizable investment needs with fiscal sustainability.
• To meet development goals, policies are needed to raise productivity growth, improve
public investment efficiency, build human capital, and close labor market gender gaps.

Global activity: stabilizing growth. Following several years of overlapping negative shocks, the
global economy is stabilizing. Global growth this year is envisaged to remain at 2.6 percent—a
slightly faster pace than previously expected, due mainly to the continued solid expansion of the
U.S. economy. Growth is projected to edge up to an average of 2.7 percent in 2025-26, as trade
growth strengthens and broad but measured monetary policy easing supports activity.
Nevertheless, the global outlook remains subdued relative to historical standards: both advanced
economies and EMDEs are set to grow at a slower pace than in the decade preceding the pandemic
(figure A). Moreover, growth in 2024-25 is set to underperform its average pace in the 2010s in
nearly 60 percent of economies, representing more than 80 percent of global output and population.
(figure B). Global inflation is projected to moderate to 3.5 percent in 2024 and 2.9 percent in 2025,
but the anticipated pace of decline is slower than expected in January (figure C).

EMDE outlook: subdued prospects. EMDE growth is forecast to moderate to 4 percent in 2024
and hover around that pace over 2025-26. Growth in China is expected to slow this year and ease
further in 2025-26, with cyclical headwinds weighing on growth in the near term along with a
continuing structural slowdown. Excluding China, EMDE growth is projected to edge up to 3.5
percent this year and then firm to an average of 3.9 percent in 2025-26, as inflation recedes,
financial conditions ease, and external demand picks up. Nevertheless, the multiple shocks of
recent years have impeded per capita income catch-up, with almost half of EMDEs losing ground
relative to advanced economies over 2020-24 (figure D). Significant challenges persist in
vulnerable economies—including in low-income countries (LICs) and those facing elevated levels
of conflict and violence—where growth prospects have deteriorated markedly.
Risks to the outlook: tilted to the downside. Although risks have become somewhat more
balanced, they remain tilted to the downside. Escalating geopolitical tensions could disrupt trade
and commodity markets, hurting economic activity. Heightened trade policy uncertainty and
proliferating trade restrictions could weigh on trade prospects. Advanced-economy interest rates
are expected to remain well above 2000-19 average levels and could turn out even higher if
inflationary pressures persist, substantially slowing global growth (figure E). Other risks include
weaker-than-expected growth in China and severe climate-change-related natural disasters. On the
upside, global disinflation could proceed at a faster pace than currently envisioned, aided by
stronger productivity growth. Additionally, U.S. growth could be higher than expected on account
of continued strong labor supply dynamics.
Global policy challenges: safeguard trade, support green and digital transitions, deliver debt
relief, and improve food security. Enhanced international cooperation is needed to safeguard
trade and tackle the threat of climate change. Global cooperation is also essential to leverage the
benefits of new technologies such as artificial intelligence (AI), including by tapping AI solutions
to address global challenges. Coordinated improvements in debt relief will be necessary to free up
resources for growth-enhancing investments, particularly in some of the most vulnerable EMDEs,
given elevated financing needs. Urgent action is needed to tackle the root causes of food insecurity
and protect vulnerable households.
Near-term domestic policy challenges: calibrating monetary policy and rebuilding fiscal
space. Still-elevated inflation risks underscore the need for monetary policy makers to maintain
steadfast focus on price stability. If inflation were to surprise to the upside, it would be critical for
central banks to signal their readiness to pause or reduce the pace of monetary easing. Rebuilding
fiscal buffers will be important in containing debt-service burdens and regaining market
confidence, helping to reduce funding costs. EMDEs will need to mobilize resources to tackle
development challenges without damaging the sustainability of their fiscal positions, including
through strengthening public investment management. Small states face unique fiscal challenges
stemming from their exposure to large external shocks: more than one-third of small states are at
high risk of debt distress or already in it, roughly twice the share in other EMDEs (figure F).
Structural policy priorities: boosting public investment and long-term growth. To meet
development goals and bolster long-term growth prospects, reforms at the national level are needed
to enhance the efficiency of public investment, boost human capital, and strengthen resilience and
inclusion. To accelerate public investment in EMDEs, it is critical to expand fiscal buffers,
including through reforms aimed at increasing domestic revenue mobilization and via enhanced
support from the global community. Mobilizing public resources can, in turn, help facilitate private
investment. Bolstering food security is vital, particularly in light of increased hunger, proliferating
trade restrictions, and the risks arising from conflict. Widening gender gaps in the labor market
and elevated youth unemployment rates in EMDEs highlight the need for labor market reforms
and targeted social protection measures that bolster labor force participation.