3 risks to global economic growth

By CNN Newsource

Published June 13, 2024 5:34 AM

Analysis by Krystal Hur, CNN

New York (CNN) — A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.

The global economy is finally on track to stabilize. That doesn’t mean it won’t face challenges.

The World Bank on Tuesday raised its 2024 outlook for global economic growth to hold steady at 2.6%, an increase from its previous projection of 2.4% growth. But the group warned that growth won’t be felt evenly or match the clip seen before the Covid pandemic.

“Four years after the upheavals caused by the pandemic, conflicts, inflation, and monetary tightening, it appears that global economic growth is steadying,” Indermit Gill, the World Bank’s chief economist, said in a release accompanying the report. “However, growth is at lower levels than before 2020. Prospects for the world’s poorest economies are even more worrisome.”

Here are three risks the World Bank sees.

High interest rates. The group expects global inflation to slow to 3.5% this year and 2.9% in 2025 but fall at a more sluggish pace than it expected six months ago. World interest rates will likely average 4% over 2025 and 2026, roughly double the average of the two decades preceding the pandemic, according to the World Bank.

The European Central Bank and Bank of Canada have already cut their key interest rates in recent weeks. The US Federal Reserve has yet to follow, holding rates steady for a seventh consecutive time on Wednesday.

The Fed also trimmed its projections for rate cuts this year from three to one. Chair Jerome Powell acknowledged the progress made on tamping down prices but said that the central bank needs to see inflation closer to its 2% target before easing monetary policy.

“An environment of ‘higher-for-longer’ rates would mean tighter global financial conditions and much weaker growth in developing economies,” said Ayhan Kose, the World Bank’s deputy chief economist, in a release.

Geopolitical tensions. The World Bank said that spillover risk from the Russia-Ukraine war and Israel-Hamas war could curb global growth by pushing up oil prices and shipping costs.

Oil prices have come down since initial spikes from both wars, with the price of international crude futures settling at $82.60 a barrel on Wednesday. Attacks on container vessels in the Red Sea on one of the world’s most important trade routes have driven up costs and led to shipping delays.

“Escalating conflict could also dent global business and consumer sentiment, and increase risk aversion, weighing on demand and growth,” the report said.

Politics. Risks also stem from several possible changes to government leadership this year. Key elections have occurred or are set to take place in India, Mexico, the United States, France, and the United Kingdom, among dozens of other countries.

Trade tensions are already brewing between some of the world’s biggest global economic engines. China said last month that it staunchly opposes new US tariffs on $18 billion worth of imports of Chinese electric vehicles and other products, warning that the trade barriers would affect the wider relationship between the two economic superpowers.

Then, the European Commission on Wednesday said that the EU is hiking tariffs on EVs imported from China, drawing blowback from Beijing.

“Heightened trade policy-related uncertainty and the potential for more inward-looking policies could weigh on trade prospects and economic activity,” the World Bank report said.

Even with food prices flattening out, the cost of dining out is still going up

Grocery prices stayed flat in May, after ticking down the month before. But menu prices, a source of frustration for budget-conscious consumers, are still going up — even as restaurants brag about their discounted meals, reports my colleague Danielle Wiener-Bronner.

Menu prices rose 0.4% at sit-down restaurants from April to May, adjusted for seasonal swings, according to inflation data released Wednesday by the Bureau of Labor Statistics. In that time prices ticked up 0.2% at limited service spots, which include fast casual and fast food joints.

The difference between grocery increases and menu price inflation was more pronounced for the full year. Grocery prices rose 1% in the 12 months through May. In that period, menu prices at full-service, or sit-down, restaurants rose 3.5%. They jumped 4.5% at limited-service restaurants, which include fast food and fast casual joints.

The increases, particularly in fast food prices, have caused customers to pull back on spending and complain online, eroding the sector’s reputation for affordability.

Restaurant chains raise menu prices every year, but since the pandemic hikes have been coming in fast and furious. Executives noted that for a while, the higher prices didn’t scare people off. But customers finally snapped, leaving chains to reverse course and sometimes get defensive.

McDonald’s USA president Joe Erlinger recently said in an open letter that prices have risen about 21% over five years. That’s a bit less than inflation overall — not 100% as, he said, people may think, thanks to an analysis from FinanceBuzz. It recently found that McDonald’s prices have risen 100% since 2014. Still, he acknowledged that at some locations, Big Mac meals may be going for much higher. On TikTok, complaints of $3 McDonald’s hash browns and $16 meals have gone viral.

Politicians keep courting the TikTok vote. Users aren’t impressed

TikTok may not be as hot a place for politics as many seem to think.

The attention devoted to TikTok as a powerful force in US politics — for better or for worse — does not seem to match up with the experience of most TikTok users, according to new survey data released Wednesday by the Pew Research Center and the John S. and James L. Knight Foundation.

As the short-form video app has surged to 170 million US users, politicians have flocked to TikTok in hopes of wooing young voters. Former President Donald Trump joined TikTok last week, amassing 6 million followers in a matter of days. President Joe Biden’s campaign launched on TikTok in February and has posted more than 200 videos — though the campaign’s following is just a fraction of Trump’s at 373,000.

Other politicians, meanwhile, warn that TikTok’s links to China through its parent company mean the Chinese government could theoretically try to influence US politics on a massive scale, if it ever accessed the personal data of TikTok users. (TikTok denies it has ever given the Chinese government US user data and is suing to block a law Biden signed this spring that could ban the app from the United States.)

But the picture painted by Pew’s latest surveys suggests politics is still just a small part of what the platform has to offer.