Global economic outlook 2024

By unlocking big, bold investments, we can drive sustainable development and climate action and put the global economy on a stronger growth path for all. We must build on the progress made in the past year towards an SDG Stimulus of at least $500 billion per year in affordable long-term financing for investments in sustainable development and climate action.

That includes increasing the capital base of Multilateral Development Banks and changing their business models to leverage far more private finance at reasonable cost to developing countries.

It is also time for an effective debt workout mechanism to free up fiscal space for investment in health, education, social protection, decent jobs, digital infrastructure and renewable energy—António Guterres, Secretary-General, United Nations

The recently published World Economic Situation and Prospects Report for 2024 by the United Nations offers valuable insights. It confirms that post Covid-19 pandemic, many affluent and developed economies have witnessed a substantial rebound.

However, the report highlights persistent financial challenges in developing economies, which continue to lag at pre-pandemic levels. Increased debt burdens and vulnerability to crisis affect over a third of these economies.

The analysis underscores that the difficulties are far from abating, projecting 2024 as another challenging year. Global growth, already sluggish, is anticipated to further decline, adding to the complexities of the economic landscape.

As per UN report, the global Gross Domestic Product (GDP) growth is expecting a deceleration, at a sluggish rate of 2.4% in 2024. This marks a decline from the estimated growth rate of 2.7% in 2023.

The pervasive debt crisis affecting numerous economies is predicted to persist. Additionally, the report underscores the exacerbation of challenges through geopolitical conflicts and the escalating impact of extreme weather conditions.

Outside Pakistan, the United States anticipates a slowdown, shifting from a 2.5% growth rate in 2023 to 1.4% in 2024. This deceleration is due to diminishing household savings, escalating interest rates, and a softening labour market.

Meanwhile, the European Union (EU) foresees a GDP growth of 1.2% in 2024, primarily driven by consumer spending, although facing risks emanating from elevated inflation and interest rates.

The Commonwealth of Independent States (CIS) surpassed previous projections, fueled by robust growth in the Russian Federation, a recovery in Ukraine, and strong performance in the Caucasus and Central Asia.

China’s economic recovery, progressing steadily with a 5.3% growth in 2023, is expected to moderate to 4.7% in 2024. South Asia, expanding by an estimated 5.3% in 2023, is poised for a 5.2% growth in 2024.

Africa’s growth is projected to rise from 3.3% in 2023 to 3.5% in 2024, facing challenges from climate crisis and geopolitical instability. East Asia expects a moderate slowdown, with growth declining from 4.9% in 2023 to 4.6% in 2024.

Similarly, Latin America and the Caribbean anticipate a GDP growth reduction from 2.2% in 2023 to 1.6% in 2024, influenced by tightened financial conditions and decreased exports.

The outlook of the global labour market presents contrasting scenarios between developed and developing nations. Developed countries witnessed a robust recovery, boasting low unemployment rates—3.7% in the US and 6.0% in the EU in 2023.

This recovery is accompanied by increasing nominal wages and a narrowing wage gap. However, challenges persist, including real income losses and labour shortages. In developing countries like China, Brazil, Türkiye, and Russia, there is a mix of progress and persisting issues, such as informal employment, gender gaps, and high youth unemployment.

Globally, the decline in female labour force participation to 47.2% in 2023, compared to 48.1% in 2013, and a high NEET rate (not in employment, education, or training) of 23.5% among youth underscore constant upheavals in gender equality and youth employment.

Developing nations encounter significant challenges with high external debt levels and escalating interest rates, making it problematic to access international capital markets. Decline in official development assistance and foreign direct investment further compounds difficulties faced by low-income countries.

Debt sustainability has become a pressing concern, particularly for developing nations, as global debt levels rise, and financial conditions undergo transformation.

Surge in global interest rates, influenced by central banks like the Federal Reserve and the European Central Bank tightening monetary policies, intensifies debt-servicing expenses, particularly for countries with debts denominated in foreign currencies.

Consequently, many countries find themselves compelled to address debt-related issues, considering measures such as debt restructuring, renegotiation of terms, or seeking debt relief.

The report highlights a global slowdown in investment growth, with developed nations focusing on sustainable sectors, while developing countries facing challenges like reduced foreign direct investment and capital flight influenced by geopolitical tensions.

Global investment growth is projected to remain low due to economic uncertainties, high debt burdens, and rising interest rates. Although there is growth in clean energy investment, it falls short of meeting the net-zero-emissions goal by 2050.

International trade growth weakened to 0.6% in 2023, is expected to recover to 2.4% in 2024, attributed to shifting consumer spending, geopolitical tensions, supply chain disruptions, and pandemic effects.

Moreover, protectionist policies in some countries are reshaping trade dynamics, leading to a re-evaluation of global supply chains. Developing economies, highly dependent on exports, are responding by diversifying trade partners and strengthening regional agreements to mitigate risks associated with reliance on limited markets.

By analysing South Asian economies’ situation, growth is significantly propelled by the dynamic expansion in India, which stands out as a key driver. Multinational corporations are increasingly directing their attention towards India, recognizing it as a crucial alternative hub for manufacturing.

This recognition is underpinned by strategic supply chain diversification plans adopted by developed economies. Consequently, India retains its status as the fastest-growing economy with an estimated growth rate of 6.2% in 2024. It further states that the Reserve Bank of India held its policy rate at 6.5% from February 2023 onward as inflation pressures continued over the second half of 2023.

Anticipated at a modest 2%, Pakistan’s economic growth in 2024 is forecast to be the second lowest in South Asia, with only Sri Lanka having a lower GDP growth estimate at 1.5%. However, there is a glimmer of relief as it suggests a potential easing of inflation rate, projecting a reduction to 19.1% in 2024 after reaching a historic high of 30.3% in 2023.

Escalation of interest rates remained unchanged at a record high of 22% since June 2023 and currency devaluation has heightened the risks tied to debt sustainability, not only for Pakistan but also for other developing economies. Post-pandemic era has not seen an expansion in Pakistan’s fiscal space; instead, it has experienced a constriction. Simultaneously, the burden of servicing debts has persistently increased, both domestically and internationally.

While Pakistan successfully entered a US$3 billion Stand-by Arrangement with IMF, this programme’s successful completion is pivotal for stabilizing the economy. Not only does it elevate Pakistan’s economic standing, it also improves foreign exchange reserves, facilitates fiscal adjustments, and safeguards crucial social spending.

Despite completing a successful review for the second tranche of IMF SBA, awaiting board approval indicates lingering reservations. For this, the government should concentrate on easing IMF’s concerns for smooth transfer of second tranche. The imperative focus should be on pursuing fiscal consolidation to enhance debt sustainability. This ambitious goal entails challenges but relies on strategies like boosting revenue mobilisation, improving spending efficiency, and sustaining momentum on structural reforms.

This precarious scenario unfolds at a crucial juncture for Pakistan, demanding additional external funding inflows, whether in the form of investments or other means. Such financial support is necessary to foster economic growth, effectively address climate-change-related challenges, and meet debt obligations. The challenge lies in navigating these financial complexities to ensure a sustainable and resilient economic trajectory for Pakistan.

In the context of climate change, the report highlights that the year 2023 witnessed unprecedented weather extremes, marked by the hottest summer recorded since 1880. This climatic scenario resulted in widespread and severe consequences, including devastating wildfires, floods, and droughts on a global scale.

Far-reaching impacts of these climate-related challenges are profound, directly affecting critical sectors such as infrastructure, agriculture, and sustainability of livelihoods that pose challenges for nations worldwide as they navigate the intricate interplay between climate dynamics and socio-economic stability.

The report highlights that global inflation, a major concern in recent years, is displaying signs of moderation. Headline inflation dropped from 8.1% in 2022 to an estimated 5.7% in 2023 and is anticipated to further decrease to 3.9% in 2024.

Despite this overall improvement, food price inflation persists as a prominent issue, intensifying food insecurity and poverty, particularly in developing nations. In 2023, an estimated 238 million people experienced acute food shortage, marking an increase of 21.6 million from the previous year.

In the light of global economic outlook forecasted for 2024, there is a positive indication for Pakistan that inflation rate will be reduced to 19%. However, this would only be possible when we initiate structural reforms agreed with the global lender such as a focus on privatization, reduction in subsidies, broadening the tax base, and cut non-development expenditures otherwise, the dream to put the country on the road of prosperity will not be realized.

Copyright Business Recorder, 2024