On January 9th, the most recent Global Economic Prospects report was unveiled by the World Bank (WB). Projections indicate a continual slowdown in global economic growth, decreasing from 2.6% in 2023 to 2.4% in 2024 for the third consecutive year. The WB suggests that 2024 might mark the end of a five-year period with the slowest global economic growth in the past 30 years.
Anticipated growth for developing economies in 2024 is merely 3.9%, a whole percentage point below the previous decade’s average. Following disappointing figures from the previous year, low-income economies are expected to experience weaker growth, estimated at 5.5%. Meanwhile, advanced economies are projected to see their growth rate dip to 1.2% in 2024, down from 1.5% in 2023.
Major economies are experiencing a deceleration in growth, global trade is stagnant, and financial conditions are the tightest they have been in decades. Predicted global trade growth in 2024 is a mere 50% of the average in the pre-pandemic decade.
The WB report indicates that the current global economic situation is comparatively better than a year ago, mainly due to the robustness of the U.S. economy. However, heightened geopolitical tensions pose potential short-term threats.
In contrast, the United Nations (UN), in its World Economic Situation and Prospects 2024 report released on January 4th, painted a gloomy picture of the global economy this year. Factors such as escalating conflicts, sluggish global trade, elevated interest rates, and an increase in climate-related disasters contribute to the UN’s forecast of a decline in global economic growth to 2.4% this year, compared to the estimated growth rate surpassing the forecasted 2.7% last year. Both growth rates fall below 3%, the level pre-dating the 2020 pandemic.
The UN warns of the potential prolonged tightening of credit conditions and rising interest rates as significant challenges to the global economy, particularly in less developed countries. The emphasis is placed on the necessity of investment to rekindle growth.
The Head of the Policy and Economic Analysis Division at the United Nations, Shantanu Mukherjee, asserts that concerns about a potential recession in 2023 have been largely mitigated, mainly due to the United States, the world’s largest economy, effectively managing to control inflation without significantly impeding growth.
However, Mr. Mukherjee contends that the global economy has not yet moved beyond a precarious situation, with prolonged high interest rates and a potential for price shocks remaining as significant risks. He argues that a disruption in the supply chain could result in an uptick in interest rates to curb inflation.
As per the report, global inflation is expected to be 8.1% in 2022, decreasing to 5.7% in 2023 and further declining to 3.9% in 2024. Nevertheless, around a quarter of developing countries are projected to experience inflation rates exceeding 10% this year.
Despite a notable recovery in the U.S. economy in 2023, the growth forecast indicates a decline from 2.5% in 2023 to 1.4% in 2024. With diminishing household savings, elevated interest rates, and a gradually expanding job market, consumer spending is anticipated to be subdued in 2024, and investment may continue to remain modest.
The European Union’s economic growth is anticipated to be 0.5% in 2023 and 1.2% in 2024, driven by increased consumer spending attributed to easing price pressures, rising real wages, and a stable labor market.
Forecasts for the Japanese economy indicate a growth rate of 1.2% in 2024, compared to the estimated 1.7% in 2023. The rise in inflation may signal the conclusion of a deflationary trend lasting for more than two decades.
In China, challenges in the real estate sector and reduced external demand are expected to result in a slight deceleration of economic growth to 4.7% in 2024.
During a discussion on the global economic outlook at the World Economic Forum (WEF) in Davos, Switzerland, on January 19th, ECB President Christine Lagarde expressed concerns about indications that consumer activity, once a significant driver of economic growth, is not as strong as before. She attributed this trend to a gradual decline in savings across most developed economies, reflected in a decrease from 10% to nearly zero.
However, Lagarde stated that trade activities are returning to normal, pointing out that global trade volume increased in October 2023 for the first time in several months. Another sign of a trade normalization trend is the general decrease in both overall and core inflation (excluding food and energy prices) globally, except in the euro area.
During a sideline event at the WEF’s annual meeting on January 17th, IMF Managing Director Kristalina Georgieva noted that global growth was positively supported by late 2023 trends. She suggested that the global economy would gain further momentum in 2024, with improved growth rates, overcoming initial assessments in 2023. Inflation could decrease without major economies slipping into recession.
However, Georgieva acknowledged certain challenges transitioning from 2023 to 2024. Ongoing geopolitical tensions, such as the prolonged conflict between Israel and Hamas and Houthi attacks on cargo ships in the Red Sea, pose potential risks, leading to increased price pressures and supply chain challenges in 2024.
Concerning the economic situation in China, Georgieva urged the country to persist in supporting state-owned enterprises, address concerns about debt, and enforce regulations in the real estate sector. She emphasized that these measures are crucial to prevent the economy from entering a period of sluggish growth.
Regarding the U.S. economy, Georgieva mentioned the possibility of a “soft landing”, aligning with the expected implementation of Federal Reserve interest rate cuts. In line with this view, Gita Gopinath, the IMF’s Chief Economist, asserted that the likelihood of a “soft landing” has significantly increased, cautioning against expecting rapid interest rate cuts.
During a press conference on January 11th, IMF spokesperson Julie Kozack remarked that the global economy could experience a “soft landing,” with inflation continuing to decrease without causing severe economic downturn. According to her, the global economy demonstrated more resilience than expected last year, and predictions of recession in many regions did not materialize. The IMF anticipates that this trend will continue this year.
However, the recent and medium-term growth rates of around 3% are lower than the pre-pandemic average of 3.8%. According to Kozack, the IMF contributes to promoting global economic growth, especially in the medium term, through policies and reforms aimed at enhancing productivity.
The Director-General of the World Trade Organization (WTO), Ngozi Okonjo-Iweala, also expressed concerns about political developments in the Red Sea and Suez Canal regions, as well as the impact of climate change on the Panama Canal.
Okonjo-Iweala noted a substantial decline in merchandise trade in 2023, prompting the WTO to revise its growth forecast from 1.7% down to 0.8%. However, in the final quarter of 2023, trade activities showed signs of recovery, led by the automotive, components, and parts sectors.
Okonjo-Iweala expressed optimism about 2024, forecasting a 3.3% growth in trade. Trade activities may be heading towards normalization, but full normalization is not yet achieved, as trade growth still tends to be lower than GDP growth. She highlighted that unpredictable factors make forecasting challenging.
By. Pham Thanh Bien
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