GLOBAL ECONOMY SOARING: U.S. Economy Boosts Growth Forecast, But Fed’s High Rates Pose Threats

Washington, D.C. – The global economy is showing signs of improvement as the year progresses, with the United States playing a significant role in driving growth, according to the latest forecast from the World Bank. The forecast released on Tuesday projects global growth to reach 2.6 percent this year, up from a previous estimate of 2.4 percent in January, with the U.S. economy expected to grow at a rate of 2.5 percent.

The World Bank attributes the positive outlook to the resilience of the U.S. economy and its role in stabilizing the global economic landscape. Despite facing challenges such as high interest rates and ongoing conflicts in regions like Ukraine and the Middle East, the U.S. has managed to outperform expectations by adding 272,000 jobs in May, exceeding analysts’ projections.

While the global economic recovery is progressing, it is still below pre-pandemic levels, with three out of four developing countries expected to experience slower growth than initially anticipated. This slow pace of growth poses challenges for narrowing the income gap between developing and developed nations.

Central banks, including the Federal Reserve, are likely to proceed cautiously in reversing the interest rate increases of the past two years. This approach could result in global interest rates remaining elevated, averaging around 4 percent in the next two years, which is double the average seen in the two decades before the pandemic.

The World Bank also highlights concerns about rising global trade restrictions, with trading nations implementing more barriers to merchandise and services trade. The surge in protectionist measures could hamper global trade flows, further slowing down the already modest pace of economic growth.

Amid these developments, developing countries that are at higher risk of debt crises could face additional challenges if interest rates remain high for an extended period. These countries, which borrowed heavily to manage pandemic-related impacts and rising costs following geopolitical tensions, may find it difficult to secure debt relief and capitalize on potential trade opportunities in a protectionist environment.