With world nearing midpoint of what was expected to be a strong year, experts believe that global economy is heading for weakest performance.
If your view is limited to one measure, global economy can be seen at a better place in comparison to the previous year. This is because risk of a global recession seems to have receded as a result of strength in the US economy.
Global economy was significantly impacted by increased geopolitical tensions, which can lead to fresh near-term hazards for global economy. Medium-term outlook has now been diminished for a range of developing economies as per World Bank. This was because of slowing growth in several major economies, muted global trade, and tightest financial conditions possible.
Global economy is increasingly reliant on private consumption, which should rise by ~4%. This outpaces total income growth (~2.6%). Historically, these types of increases in consumption were dependent on borrowing.
All the savings accumulated during COVID-19 pandemic have been largely depleted to pre-2020 levels. As a result of this, debt is becoming key source of consumption.
Expectations of growth rates
Experts believe that global trade growth in 2024 might only be half the average in decade before COVID-19 pandemic. This is because borrowing costs for developing economies—mainly those having poor credit ratings— might remain steep. While global economy is heading for weakest performance, interest rates are stuck at 4-decade highs. This is as per inflation-adjusted terms.
Global growth might slow for 3rd consecutive year– from 2.6% in prior year to 2.4% in 2024. This exhibits around three-quarters of percentage point below average seen in the 2010s.
UN Trade and Development warns that prevailing focus on inflation seems to ignore more urgent issues. These issues include trade disruptions, climate change along with rising inequalities.
The report highlights that, in 2023, global merchandise trade saw a fall of ~1% in real terms. This exhibits a strong divergence from the overall economic growth. Contraction was mainly because of trade tensions in some of the large economies together with muted global demand.
Governments of developing countries continue to struggling due to their higher debt payment obligations. Report says that, in 2022, they actually paid $50 billion more to the external creditors than they received via new loans.
How climate change impacts global economic growth?
With higher greenhouse gas emissions, climate change continues to take place at rates much faster than expected. The impacts can be devastating and which can lead to extreme and changing weather patterns and higher sea levels.
If this is unchecked, climate change will impact a lot of development progress. More often than not, disruption impacts global food security, slows down infrastructure and jobs, and impact the human health.
To tackle climate change and make use of critical global development goals by 2030, developing countries are required to focus on higher investment. The estimate should be to the tune of ~$2.4 trillion per year.
In the absence of comprehensive policy package, prospects for this vast investment is not bright. As per World Bank, per capita investment growth in developing economies for the years 2023 and 2024 should average only ~3.7%.
Regional economic outlook
Since global economy is heading for weakest performance, UN Trade and Development believes that economic growth has been slowing in South America.
Brazil, on the other hand, should be able to grow ~2.1% in 2024. This was impacted by external pressures and commodity dependence.
Argentina might face a ~3.7% contraction in the same year because of inflation and complex debt negotiations. If we talk about North America, growth is expected to remain relatively resilient, with some challenges. The US should be able to grow at ~2.0%. This was because of concerns regarding high household debt levels.
China aims growth of ~5% growth in 2024, stemming from strong manufacturing and trade. India’s economy is expected to be supported by strong public investment and service sector growth. It is expected to see expansion of ~6.5%. Japan, on the other hand, might growth by only ~1.0% as a result of export demand challenges.
In Europe, major economies continue to face economic slowdowns. France, Germany, and Italy are expecting growth of 1.3%, 0.9%, and 0.8%, respectively. This is because of industrial and fiscal challenges.