The global economy demonstrates remarkable resilience, characterized by steady growth as inflation gradually moves towards the target. This journey has been marked by significant events, including supply-chain disruptions in the wake of the pandemic, a Russian-Ukraine conflict leading to a global energy and food crisis, and a substantial surge in inflation.
Furthermore, central banks worldwide have synchronized their monetary policy tightening efforts. Despite numerous pessimistic and gloomy forecasts, the global economy capably avoided a recession. The banking system demonstrated reasonable resilience, with major emerging market economies managing to avoid abrupt halts. Furthermore, the inflation surge, despite its severity and the resulting cost-of-living crisis, has now been on a downward trajectory.
Global economic growth has slowed down from 3.5 percent in 2022 to 3.2 percent in 2023 and is projected to continue at the same pace in 2024 and 2025, below the historical (2000–19) annual average of 3.8 percent. Global inflation is expected to fall from 6.8 percent in 2023 to 5.9 percent in 2024 and 4.5 percent in 2025.
In response to inflationary pressures, major central banks have implemented restrictive policy measures by raising interest rates. Consequently, mortgage expenses have surged, and credit accessibility has diminished, posing challenges for firms seeking to refinance their debt. This situation has contributed to subdued investment activities in both business and residential sectors across various economies.
In the United States, growth is projected to increase to 2.7 percent in 2024, as it is expected to maintain the strong momentum seen in 2023, when growth reached 2.5 percent. On other hand, China, amidst both domestic and international challenges, is forecasted to undergo a moderated growth rate, with projections dipping from 5.2 percent in 2023 to 5.0 percent in 2024.
Meanwhile, both Europe and Japan are grappling with significant economic headwinds, with growth rates expected to hover around a modest 1.0 percent for both regions in 2024. Developing economies are struggling to recover from the impacts of the pandemic, grappling with high debt levels and investment shortfalls. Although Africa expects a slight improvement in growth from 3.4 percent in 2023 to 3.8 percent in 2024.
It is noteworthy that the Least Developed Countries (LDCs) are still falling short of the 7.0 percent growth target outlined in the SDGs. The persistent challenges of high debt and limited fiscal space highlight an urgent need for coordinated efforts to address these issues and foster sustainable Pakistan Economic Survey 2023-24 and inclusive economic growth.
The momentum of international trade as a catalyst for growth is waning, evidenced by a slowdown in global trade growth to 0.3 percent in 2023. However, resurgence is anticipated, with projections indicating a recovery to 3.0 percent in 2024. In 2023, severe weather conditions, notably the hottest summer on record since 1880, resulted in wildfires, floods, and droughts across the globe. These events impacted the economy, causing significant damage to infrastructure, agriculture, and livelihoods.
Geopolitical tensions have emerged as the predominant risk facing the global economic landscape. Presently, conflicts in Eastern Europe and the Middle East, critical hubs for global food and energy distribution, pose imminent challenges.
The specter of escalating tensions in the Middle East evokes profound concern, particularly considering the region’s pivotal role, accounting for nearly 30 percent of the world’s oil production. Recent disruptions in the Red Sea have already hampered shipping via the Suez Canal, which facilitates almost 30 percent of global container traffic. The challenge for policymakers’ lies in securing macroeconomic stability and sustaining debt levels while navigating geopolitical hurdles and promoting growth in the medium term.
Heightened geopolitical tensions exacerbate market uncertainties, impeding investment flows and hindering economic growth. A surge in oil prices could ensue if tensions in the Middle East intensify. Such an occurrence would amplify global inflationary trends and impede global growth.
Copper prices have recently reached a two-year peak due to supply concerns and indications of stronger global industrial output. The ongoing elevation of commodity prices, compared to pre-pandemic levels, amidst moderate global GDP growth, suggests multiple influencing factors: geopolitical tensions are driving prices upward, investments in clean energy are boosting metal demand, and China’s increased industrial and infrastructure spending is mitigating weaknesses in its property market.
Generative AI made a notable entrance in late 2022, but its potential applications expanded rapidly throughout 2023. Economists have highlighted how AI could usher in significant shifts for businesses and policymakers. This accelerated deployment could aid advanced economies in mitigating labour shortages and assist emerging economies in elevating worker productivity and income levels.
It is widely agreed that advanced economies will reap benefits sooner, particularly in terms of productivity gains, compared to their lower-income counterparts. The World Economic Forum views the rise of AI, particularly generative AI, as part of a multifaceted transformation heralding a new era of global economic expansion with a potential to increase automation, productivity growth, efficiency, and data analysis in economies and industries.
The 2024 rises above the usual label of ‘an election year’; it emerges as ‘the election year’. An unprecedented number of voters will participate in national elections, with at least 65 countries scheduled to hold them, encompassing nearly half of the world’s population (4.2 billion people).
These elections would offer a chance for nascent democracies to take hold and the outcomes of these polls will hold significant consequences for many years to come. Populist leaders, hyper polarization, and the proliferation of mis- and disinformation, accelerated by generative artificial intelligence, pose threats to democratic norms. While not every election may usher in substantial governmental or policy changes, collectively, their results will shape an increasingly precarious global landscape.
As the global economy approaches a soft landing, central banks prioritize a smooth reduction in inflation, emphasizing the need for timely policy adjustments while advocating for medium-term fiscal consolidation to ensure debt sustainability. Supply-enhancing reforms are urged to stimulate growth and accelerate convergence toward higher income levels.
However, challenges persist, including geopolitical tensions, potential currency fluctuations, and financial sector vulnerabilities. Multilateral cooperation is essential to mitigate risks, particularly in addressing climate change and promoting green energy transition. Strengthening cross-border cooperation is vital to maintain stable trade policies and resolve debt issues effectively, while fostering innovation and ensuring responsible technology use.--Excerpted from the Economic Survey
Copyright Business Recorder, 2024
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