Three big risks to the global economy

The World Bank (WB) believes that global GDP is under pressure from three factors, including high interest rates, military conflicts and political fluctuations.

According to a World Bank report on June 12, the global economy is forecast to grow by 2.6% this year, slightly higher than the old expectation of 2.4%. However, the World Bank warns that growth is uneven and has not reached the same speed as before the pandemic.

“After 4 years of pandemic, conflict, inflation and monetary tightening, it seems that economic growth has stabilized. However, GDP is still lower than before 2020. Outlook for the economies The poorest economy in the world is still worrying,” Indermit Gill – chief economist of the World Bank commented in the report.

The World Bank believes that currently, the global economy faces three major risks. That is, high interest rates, military conflicts and political upheavals.

High interest rate

The World Bank forecasts that global inflation will slow down to 3.5% this year and 2.9% in 2025. However, this decrease is much slower than expected 6 months ago. Global interest rates to average 4% in 2025 and 2026, nearly double two decades ago.

People walk past a restaurant in Chengdu (Sichuan, China) in April 2024. Image: Reuters

In recent weeks, the European Central Bank (ECB) and the Bank of Canada have lowered reference interest rates. However, the US Federal Reserve (Fed) has not yet acted. They have kept profits unchanged for 7 consecutive meetings since the middle of last year.

The Fed also lowered its forecast for the number of interest rate cuts this year, from 3 to 1. Fed Chairman Jerome Powell admitted that the fight against inflation is progressing, but they need to record this number closer to 2% to loosen monetary policy.

“A long-term high interest rate environment means global financial conditions will tighten and growth in developing countries will be much slower,” explained Ayhan Kose – an economist at the World Bank.

Geopolitical tensions

The World Bank believes that risks spreading from the Russia-Ukraine and Israel-Hamas wars could hinder global growth, driving up oil prices and transportation costs.

Fuel prices have recently cooled from the peak set when the two new conflicts took place. Brent crude oil is currently around 82 USD a barrel. However, attacks on cargo ships on the Red Sea – one of the world’s most important trade routes – continue. This increases costs and causes delays in shipping goods.

“Escalating conflicts could further drag down business and consumer confidence, fueling risk aversion, thereby putting pressure on demand and growth,” the report said.

Political upheaval

This year, the world has many notable elections, such as in India, Mexico, the US, France, and the UK. A change in leadership can lead to changes in foreign and economic policies.

Currently, the world’s largest economies are still mired in trade tensions. The US last month increased import taxes on $18 billion of Chinese goods, including electric vehicles. China immediately warned that this trade barrier would further degrade relations between the two sides.

The European Union (EU) on June 12 also announced the imposition of 17-38% tariffs on electric vehicles imported from China. The previous general tax rate was 10%. Chinese Foreign Ministry spokesman Lin Jian said the EU investigation was a “typical case of protectionism”. He affirmed that Beijing will take all necessary measures to “firmly protect” its legitimate rights and interests.

“Higher trade tensions and the possibility of countries increasing their inward-looking policies could put pressure on global trade and economic activities,” the WB report concluded.

By Editor

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