Global economic resilience and prospects

Steady global growth amidst regional variations

As we look towards 2024 and 2025, the global economy is projected to sustain its growth rate at 3.2% annually, mirroring the growth pattern of 2023. According to the latest IMF report, this steady but moderate growth trajectory highlights a stabilizing, albeit gradual, recovery from the disruptive economic conditions of recent years.

Advanced vs. emerging economies – A diverging path

The growth forecasts reveal slight regional variations that highlight a diverging path between advanced and emerging economies.

Advanced economies: These economies are expected to experience a slight acceleration in growth. From achieving 1.6% growth in 2023, they are forecasted to rise to 1.7% in 2024 and further to 1.8% by 2025.

This gradual increase suggests a strengthening economic foundation, likely supported by:

• Continued monetary easing.

• Fiscal supports.

• Recovery in consumer and business confidence.

Emerging market and developing economies: Contrarily, these regions might see a modest slowdown. After growing at 4.3% in 2023, the growth rate is expected to decelerate to 4.2% in both 2024 and 2025.

This slowdown could be attributed to various factors including:

• Tighter monetary conditions.

• Structural bottlenecks.

• External financial pressures.

• Various socio-political challenges that could dampen economic momentum.

Long-term global growth prospects

Looking five years ahead, the global growth forecast at 3.1% stands at its lowest in decades, signaling a long-term trend of subdued economic expansion.

This diminished forecast reflects the lingering impacts of:

• The pandemic.

• Geopolitical tensions.

• Structural changes in the global economy including technological transformations and shifts in trade policies.

Inflation dynamics

Inflation rates are expected to see a steady decline across the globe.

2023 to 2025 forecast: Global inflation is anticipated to decrease from 6.8% in 2023 to 5.9% in 2024, and further down to 4.5% by 2025. This downward trend suggests that inflationary pressures, which have been a significant concern over recent years, are starting to abate as supply chains stabilize and demand normalizes.

Advanced economies: These economies are likely to hit their inflation targets sooner due to:

• More aggressive monetary interventions and

• Better-aligned fiscal policies.

Emerging markets and developing economies: Inflation in these regions is expected to decline more slowly, complicated by:

• Less flexible monetary tools.

• Higher food and energy dependencies.

• Various external and internal vulnerabilities.

Core inflation trends

Core inflation, which excludes volatile food and energy prices, is generally projected to decrease more gradually. This suggests that underlying inflation pressures remain persistent, reflecting entrenched inflation expectations and the pass-through effects of previous price increases.

Navigating commodity prices

• Trends and forecasts for 2024-2025.

The global commodity markets are expected to witness significant shifts over the 2024-2025 period, influenced by a combination of:

• Macroeconomic factors.

• Technological advancements.

• Geopolitical dynamics.

Understanding these price movements is crucial for policymakers, investors, and industry stakeholders as they adjust to the evolving economic landscape.

• Overview of commodity price trends.

Commodity prices are forecasted to decline overall, reflecting changes in supply capacities, demand dynamics, and broader economic conditions:

Fuel Commodities: The prices for fuel commodities, including oil, are anticipated to see a noticeable decrease. This decline is attributed to increased supply, particularly from non-OPEC+ countries such as Russia, and high global spare capacity. For instance, oil prices are projected to fall by about 2.5% in 2024.

Coal and Natural Gas: These energy commodities are also expected to continue their downward trend from previous peaks. Coal prices are forecasted to drop by 25.1%, and natural gas prices by 32.6% in 2024, driven by new supply channels coming online and a rebalancing of market demand.

Base Metals: Prices for base metals are set to decrease by 1.8% due to reduced industrial activity, particularly in significant economies like Europe and China. This reduction stems from slower economic growth prospects and evolving industrial demands.

Food Commodities: Agricultural commodity prices, including those for essential crops like wheat and maize, are predicted to decline by 2.2%. This drop is expected due to abundant global supplies facilitated by favorable weather conditions and improved agricultural outputs.

Upside risks and potential boosts to the global economy in 2024-2025

As the global economy gears up for a phase of stable yet moderate growth, understanding the potential upside risks and boosts that could positively affect the economic landscape is crucial for policymakers, investors, and business leaders. These factors could lead to outcomes that surpass the basic growth forecasts, providing new opportunities and challenges for global economic management.

Potential upside risks

Upside risks are unexpected events or trends that could lead to better-than-anticipated economic outcomes. For 2024-2025, several key factors could serve as catalysts for enhanced economic performance:

Election-year fiscal policies: Many countries will undergo significant elections in 2024, often termed a “Great Election Year.” Historically, election years are associated with increased government spending as incumbents aim to boost popularity through expansionary fiscal measures, such as tax cuts and increased public expenditures. These actions tend to stimulate economic activity in the short term, potentially elevating global growth rates above current projections.

Resolution of trade tensions: If major economies, particularly the U.S. and China, successfully negotiate resolutions to ongoing trade disputes, the resultant easing of trade tensions could lead to improved business confidence and investment. Reductions in tariffs and clearer trade rules could enhance global trade flows, boosting productivity and growth in involved economies.

Technological advancements in productivity: Recent breakthroughs in artificial intelligence and other digital technologies offer substantial opportunities to enhance productivity. The integration of AI across various sectors, including manufacturing and services, can significantly reduce costs, improve operational efficiencies, and open up new markets. These advancements could particularly benefit advanced economies, leading to higher-than-expected GDP growth rates.

Potential economic boosts

In addition to these risks, certain direct boosts could reinforce the global economic growth trajectory:

• Supply-side improvements: Improvements on the supply side, such as increased commodity output or technological innovations that streamline production processes, can lower costs and enhance economic efficiency.

  • For example, faster-than-anticipated increases in shale oil production or breakthroughs in renewable energy technologies could reduce energy costs globally, fostering lower inflationary pressures and stronger economic growth.

• Accelerated global vaccination efforts: Enhanced global vaccination efforts against COVID-19 and other potential health threats can lead to quicker-than-expected recoveries in consumer and business confidence. This boost could particularly impact sectors like travel, hospitality, and services, which have been disproportionately affected by the pandemic.

• Structural reforms: Several economies, particularly emerging markets, have significant room to grow through structural reforms. Reforms that enhance business environments, improve labor market dynamics, and strengthen financial systems could spur investment flows and technological adoption, boosting productivity and growth.

Implications for policymakers and businesses

The potential for these upside risks and boosts requires a proactive approach from policymakers and business leaders:

Policymaking: Governments and central banks might need to consider the implications of these risks when designing fiscal and monetary policies. For instance, potential inflationary pressures from election-year fiscal expansions may require offsetting monetary tightening or more focused structural reforms to enhance economic efficiency.

Business Strategy: Companies should prepare for scenarios where these boosts might materialize, potentially reshaping market dynamics. Businesses could invest in technology and capacity building to capitalize on lower input costs and new market opportunities presented by improved trade relations and technological advancements.

Investment Decisions: Investors should remain alert to the signs of these risks materializing, as they could affect market valuations and the relative attractiveness of different asset classes. Diversification and strategic asset allocation will be key in managing potential volatility and capitalizing on new growth opportunities.

Conclusion

As the global economy approaches 2024 and 2025, it stands at the cusp of a moderate yet steady growth phase, underpinned by declining inflation and significant shifts in commodity prices. Policymakers, investors, and business leaders must navigate these changes with agile and forward-thinking strategies to harness potential upside risks effectively. Key to this will be leveraging election-year dynamics, resolving trade tensions, and capitalizing on technological advancements to not only meet but exceed the modest growth forecasts. Embracing these opportunities with proactive and coordinated global efforts will be crucial in shaping a resilient and robust economic future.