The World Bank estimates 2.4 percent global GDP growth for 2023 – marking the third consecutive year of slowing expansion. Advanced economies face below-average growth compared to 2010-2019 rates. However, emerging and developing markets (EMDE) are expected to near pre-pandemic levels. Per the World Bank, 2020-2024 will be the weakest start of a decade for global growth since the 1990s. The chart below shows this slowdown. Global inequality is also expected to increase as emerging markets make limited progress catching up to advanced nations in GDP per capita.
Note: GDP aggregates are calculated using real U.S. dollar GDP weights at average 2010-19 prices and market exchange rates. Panel shows non-overlapping five-year average growth.
According to the IMF, global growth is projected at 2.9 percent in 2024, well below the historical (2000–19) average of 3.8 percent. Growth in advanced economies is expected to further slow to 1.4 percent in 2024.
Ongoing humanitarian crises continue to stymie optimism. The enduring Israel-Palestine and Ukraine conflicts are inflicting immense harm and costs to humanity. Meanwhile, Japan suffered earthquakes and tsunamis on January 1st causing extensive damage. Given compounding disasters and conflicts, alongside global monetary tightening, muted World Bank growth forecasts seem reasonable. However, inflation is easing towards major central bank targets.
According to The Middle Road, with inflation potentially peaking, geopolitical tensions may pose the foremost risks rather than purely economic factors. Leading economist Paul Krugman puts 2024 CPI market expectations around 2.3 percent, approaching the 2 percent inflation targeted by major central banks. However, The Middle Road believes an aggressive Fed funds rate cut cycle seems unlikely given substantial uncertainty. Even amidst strong wage growth, major tech firms like Google and Amazon announced layoffs. With mostly fixed rate lending, U.S. rate cuts may also be shallower than markets expect. Europe on the other hand has majority of the loans on floating lending rates and therefore consumers more prone to higher interest rates viz a viz the US. Per the European Commission, German economic contraction could continue with -0.3 percent GDP growth in 2023.
On a brighter note, social financing mechanisms are rising within development spheres – from sovereign bonds to corporate initiatives aimed at funding sustainable goals.
Check a not on Global Inequalities from The middle Road here.