May 28, 2024
the Global Economy

The global economy managed to defy expectations in the year of 2023. It did not suffer a significant downturn, even amid challenging conditions, like wars, high inflation, and the biggest interest-rate surge in decades. As per Kavan Choksi, this highlighted that the world economy has grown more resilient in ways people might not even grasp. However, it is not a good idea to think the danger has passed. After all, the world economy is likely to experience several risks and challenges in 2024.

Kavan Choksimarks a few key challenges likely to be faced by the global economy in 2024

Geopolitical tensions have emerged as one of the key challenges for the global economy. Wars range in two regions vital to the food and energy supply of the world, Eastern Europe and the Middle East. Escalation of the conflict in the Middle East has the odds of pushing the energy market into uncharted territory, as the region accounts for almost 30% of the global oil production. In fact, attacks on the Red Sea have already caused disruptions in shipping through the Suez Canal, which tends to account for 30% of global container traffic.

Increasing geopolitical tensions elevate uncertainties, thereby hurting economic growth and investments. Wars and conflicts can also lower global supply capacity, with potential inflationary impacts. Earlier, it was predicted that oil prices may decline in 2024. However, in case the Middle East escalates, there is a chance that oil prices could go up, paving the way for global inflation and reducing global growth.

Growth in China is likely to be slow in 2024, which may hamper several advanced and developing economies that heavily rely on trade with China. China was the destination for nearly 20% of all goods exports from developing economies at the end of 2021, about five times the share at the start of this century. Over the decades, China has also emerged as a key source of demand for commodities, especially the ones vital to the green-energy transition. In the current landscape, China is subject to downside risks, especially considering the stresses in its property sector. Slowing of China’s growth can essentially hamper commodity-exporting developing economies.

Kavan Choksi mentions that even though policy interest rates are quite likely to come down in 2024, it may not be fast enough for certain nations. Subsequent to staying negative for an extended period of time, global real interest rates or the nominal rates adjusted for inflation, are now positive. They are expected to remain elevated for the foreseeable future.

Taking the sluggish growth into account, this situation will create ongoing pressure for developing economies with weak credit standings. By the end of 2023, the number of developing economies facing debt difficulties had reached its highest point since 2000. The interplay of slow growth, elevated real interest rates, and increased debt levels could increase the challenge of servicing debt for vulnerable developing economies, potentially leading more of them into financial distress. An increase in financial strain in these economies can have a negative impact on global growth.

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