The World Bank’s chief economist said the global economy is expected to continue to grow at a steady pace over the next two years, supported by better-than-expected performance of the economies of the United States, China and Europe, limited impact of tariff fluctuations, lower inflation rates, and high investment in artificial intelligence, despite the continuation of a range of key risks.
And Ayhan Koseh, deputy chief economist at the World Bank Group and director of the Economic Outlook Group, said that the upward revisions to the global growth forecast are “good news”, in his assessment of the results of the World Economic Outlook report published on January 13.
And the World Bank raised its forecast for global economic growth to 2.6% this year, compared to 2.4% in previous estimates, and to 2.7% next year instead of 2.6%.
And Kuseh told the Turkish Anadolu Agency that these revisions reflect better-than-expected results in the major economies, adding: "The US, Chinese and European economies achieved a stronger performance than expected."
And he noted that the impact of tariff volatility and global trade-related uncertainty was lower than initial estimates, stressing that “international supply chains have shown resilience that exceeds expectations.”
He also pointed to the improvement of financial conditions as inflation stabilized, along with the increasing role of investments in artificial intelligence in some countries, which provided an additional boost to growth.
"This year we will see whether this improvement is permanent or temporary, but the good news is that we have raised growth expectations and expect it to continue at a stable pace over the next two years."
Tariffs and debt – the most important risks
And he warned that repeated changes in global trade policies, particularly tariffs, remain the biggest risk to the economic outlook because of the uncertainty they create.
And the second risk is the possibility of a return to financial shocks, while the third risk is the escalation of debt levels in many countries, which could lead to repayment problems if financial conditions tighten.
“There is a serious debt problem in developing countries, and this problem is also present in developed countries,” he said, noting that advanced economies generally have greater debt sustainability.
And debt levels in low-income countries have risen sharply since the coronavirus pandemic, increasing pressure on public finances.
And Kuseh stressed the need to adopt credible medium-term fiscal frameworks to address these challenges, saying: “What is most important is to put forward a serious medium-term fiscal program. The revenue side of this program should be very strong, with actions to increase revenue and improve spending efficiency.”
Transparency was an essential element for confidence-building, he added, stressing that financial programs should be supported by macroprudential and appropriate financial policies.
Inflation is likely to decline further.
And global inflation recorded a slight downward trend over the past year, and is expected to continue to decline over the coming period.
"We saw a limited downward trend in inflation rates around the world last year, and we expect this trend to continue," he said.
He attributed the slowdown to low energy prices and calm labor markets, despite continued commodity price volatility.
He stressed that many central banks remain focused on fighting inflation, warning that policymakers should remain prepared to deal with any potential inflationary shocks.
Labor Market Challenges in Developing Countries
And he warned that the next decade will be crucial for labor markets, noting that about 1.2 billion people between the ages of 15 and 24 will enter the labor market in developing countries.
He stressed that providing job opportunities for young people is essential to maintaining social stability, pointing out that job opportunities should allow them to contribute productively and advance in their career paths.
And he pointed out that the pace of job creation in developing countries over the past 25 years has not kept pace with population growth, adding: "If the same pace continues over the next 10 years, we will face a very serious unemployment problem."
Kuseh called for improving the investment environment, supporting the growth of companies, and ensuring that new entrants to the labor market have access to education and skills suitable for sectors with high added value.
The Impact of Artificial Intelligence: Opportunities and Risks
And with regard to artificial intelligence, Kosh explained that its impact on the labor market is complex and disparate, saying: "Artificial intelligence can create new jobs, but at the same time it may lead to the disappearance of some jobs in the short term."
He stressed the importance of the role of government policies in supporting digital infrastructure and education, to ensure that young generations can enter the labor market with skills that are compatible with technological transformations.
"Government policies must step in to create appropriate digital infrastructure, and ensure that new generations are engaged in the labor market by receiving the necessary education," he said.
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