The World Bank (WB) has projected a global economic growth rate of 2.5% for this year. This downward revision from January’s forecast reflects the impact of soaring energy prices and intensified inflationary pressures stemming from Middle East conflicts.
According to a statement from the Ministry of Finance and Economy on Thursday, the WB released these figures in its Global Economic Outlook report. This year’s forecast is 0.4 percentage points lower than last year’s growth rate of 2.9%.
The WB issues its global economic outlook twice annually, in January and June. The current estimate represents a 0.1 percentage point decrease from January’s projection of 2.6%.
The WB attributes this year’s anticipated slowdown to surging energy prices and inflationary pressures resulting from Middle East conflicts.
Notably, the WB assesses that downside risks outweigh upside potential for this year’s growth. It warns that growth could further decline by 0.4 to 0.8 percentage points if certain scenarios materialize, including renewed Middle East hostilities, prolonged strait blockades, trade policy uncertainties, monetary tightening, and climate disasters. However, the spread of artificial intelligence (AI) related investments and productivity gains through AI adoption could serve as positive factors.
Assuming conflicts remain contained, the WB forecasts growth rates of 2.8% for both next year and 2028, driven by a recovery in energy supply.
For advanced economies, the WB projects a growth rate of 1.5% this year, down 0.3 percentage points from last year and 0.2 percentage points lower than January’s forecast.
The U.S. is expected to achieve 2.2% growth, with robust consumer spending and active AI investments partially offset by Middle East conflict impacts.
Despite a strong start to the year, the Eurozone is forecast to grow by just 0.8%, significantly affected by energy price hikes due to high dependence on natural gas and crude oil imports.
Japan’s growth forecast has been trimmed to 0.7%, down 0.1 percentage points from January, with rising energy prices likely to strain consumption and exports.
For emerging and developing countries, the WB has lowered its forecast by 0.4 percentage points to 3.6%.
China’s growth is projected at 4.2%, down 0.2 percentage points from January. While the ongoing real estate slump is expected to dampen growth, the country’s oil reserves and high renewable energy share may buffer some impacts from Middle East conflicts.
The East Asia and Pacific region’s forecast has been revised down to 4.2%, reflecting China’s slowdown and the region’s high dependence on Middle Eastern oil and gas.
In contrast, South Asia’s outlook has been raised to 6.3%, with countries like India (6.6%) expected to maintain solid growth foundations despite temporary slowdowns.
The Middle East and North Africa, directly affected by conflicts, is projected to grow by just 1.6%, a 2.0 percentage point reduction from January, primarily due to disruptions in energy production and exports.
While the WB didn’t provide a specific forecast for South Korea, the Bank of Korea and the Organisation for Economic Co-operation and Development (OECD) have projected 2.6% growth, with the Korea Development Institute forecasting 2.5%.
The WB now expects average international oil prices to reach 94 USD per barrel this year, up 34 USD from January’s 60 USD estimate.
The WB has issued policy recommendations for the international community and developing countries. It urges enhanced cooperation, strengthened multilateral trade systems, and accelerated energy transition to ensure energy and food security.
For developing nations, the WB emphasizes the need to curb inflation, maintain financial stability, and ensure fiscal sustainability. It also stresses the importance of creating a business-friendly environment, investing in physical and human capital, and mobilizing private resources to build a foundation for job creation.