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Global economic growth is expected to continue at a steady pace over the next two years, supported by stronger-than-expected performance in the U.S., Chinese and European economies, limited fallout from tariff fluctuations, easing inflation and rising investments in artificial intelligence, a senior World Bank economist said.
Ayhan Kose, deputy chief economist of the World Bank Group and director of the World Bank’s Prospects Group, described upward revisions to global growth forecasts as “good news,” as he assessed findings from the Global Economic Prospects report published Jan. 13.
The World Bank raised its global growth forecast to 2.6% for this year, up from 2.4%, and to 2.7% for next year, from 2.6%.
Kose told Turkish news agency Anadolu that the revisions reflect better-than-expected outcomes in major economies.
“The American, Chinese and European economies performed better than expected,” he said.
He added that the impact of tariff fluctuations and trade-related uncertainty on growth proved smaller than anticipated.
“International supply chains turned out to be much more resilient than expected,” Kose said.
He also pointed to improved financial conditions as inflation has stagnated, while increased AI investment in some countries has provided additional momentum.
“We will see this year whether this is permanent or temporary, but the good news is that we have pulled growth up and expect growth to continue steadily in the next two years,” he said.
Kose said frequent changes in global trade policy, particularly customs tariffs, remain the most significant risk to the outlook because of the uncertainty they create.
A second risk, he said, is the potential return of financial shocks, while the third is mounting debt levels in many countries, which could trigger repayment problems if financial conditions tighten.
“There is a serious debt problem in developing countries, and this problem also exists in developed countries,” Kose said, adding that advanced economies generally have a much greater capacity to carry debt.
He said debt levels in low-income countries have risen sharply since the coronavirus pandemic, intensifying fiscal pressures.
To address the issue, Kose stressed the need for credible medium-term fiscal frameworks.
“The most important thing is to put a serious medium-term fiscal program on the table,” he said. “The revenue side of this program needs to be very strong, measures to increase revenues need to be taken, and increasing efficiency in expenditures is very important.”
He added that transparency is essential to building trust and that fiscal programs should be supported by macroprudential and financial policies.
Kose said global inflation showed a modest downward trend last year and is expected to continue easing.
“We saw a slight downward trend in inflation around the world last year, and we expect this to continue,” he said.
He attributed the slowdown to softer energy prices and cooling labor markets, even as commodity prices remain volatile.
Kose said many central banks remain focused on fighting inflation and warned that policymakers must stay ready to respond to potential inflationary shocks.
Kose said the coming decade will be critical for labor markets, noting that about 1.2 billion people aged 15 to 24 are expected to enter the workforce in developing countries.
Finding jobs for young people is essential for social stability, he said, adding that employment must allow them to contribute productively and advance in their careers.
He warned that job creation in developing countries over the past 25 years has not kept pace with population growth.
“If the same speed continues over the next 10 years, we will face a very serious unemployment problem,” he said.
To address this, Kose said countries need to improve the investment climate, support firm growth and ensure new entrants to the workforce receive education and skills suited to high-value, productive sectors.
Turning to artificial intelligence, Kose said its impact on employment is complex.
“AI can create new jobs while causing some jobs to disappear in the short term,” he said.
He stressed the need for government policies to support digital infrastructure and education to help younger generations enter the workforce with relevant skills.
“So government policies need to step in to establish digital infrastructure and ensure new generations join the business world by receiving necessary education,” he said.
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