US economy resilient despite numerous challenges

From January through March, the U.S. economy expanded at just a 1.3% annual rate, the slowest pace in nearly two years, and Kose said the World Bank forecast took the first-quarter slowdown into account. The pullback was due largely to factors that economists view as temporary: A surge in imports and a reduction in business inventories. By contrast, the core components of economic growth — consumer spending and business investment — remained solid in the first three months of the year.

The global and especially the U.S. economies have proved unexpectedly resilient in the face of high interest rates engineered by the Federal Reserve and other central banks to curb the high inflation that flared up in 2021.

But even after the World Bank’s upgrade, global growth looks sluggish — a half percentage point below the 2010-2019 average. Inflation has cooled significantly — from 7.2% in 2022 to 4.9% last year to a forecast 3.5% in 2024 — but remains above where central banks want it. That means central bank policymakers may be cautious about reducing rates from today’s high levels.

That approach, though, carries risks of its own, notably the danger that high borrowing rates will cause economic growth to slow too much.

“There are consequences of keeping interest rates elevated for a longer period,” Kose said. “You end up with slower growth. We need to avoid lower-for-longer economic growth around the world.’’

“The world,’’ he warned, “might become stuck in the slow lane.’’

Many countries are already under strain. The World Bank expects emerging market and developing countries to collectively grow 4% this year, down from 4.2% in 2023. In many cases, their populations are outpacing their economies, reducing their annual income growth per person to 3% this year through 2026 — far below the average 3.8% in the decade before the pandemic struck.