According to the United Nations report on the World Economic Situation and Prospects 2024, presented on Thursday, it is expected that global economic growth will decrease from an estimated 2.7 percent in 2023 to 2.4 percent in 2024.
The report states that the weakening of global trade, high borrowing costs, high public debt, persistent low investment, and increasing geopolitical tensions are jeopardizing global growth.
It is forecasted that growth in many developed economies, particularly in the United States, will slow down in 2024 due to high interest rates, decreased consumer spending, and weaker job markets.
The short-term growth prospects for many developing countries, particularly in East Asia, West Asia, Latin America, and the Caribbean, are also worsening due to tighter financial conditions, decreased fiscal space, and slow external demand.
Low-income and vulnerable economies are experiencing increasing pressure on their balance of payments and risks of debt sustainability. According to the report, the economic prospects of small island developing states will be constrained by heavy debt burdens, high interest rates, and growing climate-related vulnerabilities.
“In short, the world is struggling to regain the annual average of 3.0 percent growth from 2000 to 2019, representing years of suboptimal growth,” said Shantanu Mukherjee, Director of the Division for Economic Analysis and Policy of the UN Department of Economic and Social Affairs, during the launch of the main report.
This latest forecast comes after global economic performance exceeded expectations in 2023. However, the stronger-than-expected growth last year concealed short-term risks and structural vulnerabilities, according to the report.
It is anticipated that the growth in the United States will be 1.4 percent in 2024, following an estimated growth rate of 2.5 percent in 2023.
Strong consumer spending supported by solid family balances and resilient labor and housing markets supported better-than-expected performance in 2023. Despite aggressive monetary policy, the unemployment rate remained low. Strong housing prices increased and maintained homeowners’ net worth, exerting a strong wealth effect and supporting high levels of household spending. This could change quickly, especially if housing and asset prices decline, effectively reducing households’ net worth, according to the report.
Amid a decrease in household savings, high interest rates, and a gradually weakening labor market, consumer spending is expected to weaken in 2024 and investment to remain slow in the United States. While the likelihood of a sharp downturn has significantly decreased, the US economy will face significant downside risks due to the deterioration of the labor, housing, and financial markets, as reported.
Among the major developed economies, the European Union will experience a higher growth rate of 1.2 percent in 2024, compared to the estimated 0.5 percent in 2023. The Japanese economy will continue to slow down, going from 1.7 percent in 2023 to 1.2 percent in 2024.
For developing economies, there will be a slight decrease in growth from 4.1 percent in 2023 to 4.0 percent in 2024.
China’s economy is projected to decelerate from an estimated growth rate of 5.3 percent in 2023 to 4.7 percent in 2024. The economy of India, which was estimated to have grown by 6.3 percent in 2023, will grow by 6.2 percent in 2024 according to the report.
It is projected that global inflation will further decrease from an estimated 5.7 percent in 2023 to 3.9 percent in 2024. However, the report warns that inflationary pressures are still high in many countries and any further escalation of geopolitical conflicts could lead to a renewed increase in inflation.
It is projected that in approximately a quarter of all developing countries, annual inflation will exceed 10 percent in 2024. Since January 2021, consumer prices in developing economies have increased by a cumulative total of 21.1 percent, significantly eroding the economic gains achieved after the COVID-19 recovery. Amid supply disruptions, conflicts, and extreme weather events, inflation in local food prices has remained high in many developing economies, disproportionately affecting the poorest households, as mentioned.
According to the report, global labor markets have experienced an uneven recovery from the pandemic. In developed economies, labor markets have remained resilient despite a slowdown in growth. However, in many developing countries, especially in Western Asia and Africa, key employment indicators have not yet returned to pre-pandemic levels. The global gender employment gap remains high, and gender wage gaps not only persist but have even widened in some occupations.
In addition to increasing interest rates, the central banks of the major developed economies, with the exception of the Bank of Japan, began a quantitative reduction in 2022 and accelerated the pace in 2023 to reduce excessive liquidity. The monetary tightening, including quantitative reduction, in developed countries will have significant effects on developing countries, according to the report.
Many developing countries continue to face high borrowing costs, restrictions on access to international capital markets, and currency depreciation. The increase in borrowing costs and currency depreciation has worsened debt sustainability risks in many developing countries. This is particularly worrying at a time when developing economies need additional external financing to stimulate investment and growth, address climate change-related risks, and accelerate progress towards the Sustainable Development Goals (SDGs), according to the report.
Based on the report, it is likely that global investment growth will continue to be moderate and international trade will be losing momentum as a driver of growth, which has a negative impact on global growth.
The report calls for stronger international cooperation to stimulate growth and promote green transition.
Governments will need to avoid self-destructive fiscal consolidations and expand fiscal support to stimulate growth at a time when global monetary conditions will remain tight. Central banks around the world continue to face difficult dilemmas in balancing inflation, growth, and financial stability objectives. Specifically, central banks in developing countries will need to utilize a wide range of macroeconomic and macroprudential policy tools to minimize the adverse effects of monetary constraint on developed economies, according to the report.
Urgent and robust global cooperation initiatives are needed to prevent debt crises and provide adequate financing to developing countries. Low-income countries and middle-income countries with vulnerable fiscal situations require debt relief and debt restructuring to avoid a prolonged cycle of weak investment, slow growth, and high debt service burdens. Additionally, global climate financing needs to be significantly increased. Industrial policies need to be readjusted to drive innovation and productive capacity, build resilience, and accelerate a green transition.
“In the year 2024, we must emerge from this impasse. By unlocking large and bold investments, we can drive sustainable development and climate action, and put the global economy on a stronger path of growth for everyone,” explained United Nations Secretary-General Antonio Guterres in the preface of the report.
Now is also the time to implement an effective mechanism to solve the debt and thus free up fiscal space to invest in health, education, social protection, decent employment, digital infrastructure, and renewable energy,” he said. “In the year 2024, we must seize the opportunity to create a more inclusive and resilient global economy that works for everyone, anywhere.”
(Xinhua)
