On 9^th January, 2024, the World Bank has released its latest Global Economic Prospects report. The report talks about global economic activity, monetary policy, financial conditions and trade growth. A drastic slowdown in 2022 – due to pandemic following by another decline in 2023. As the world economy is trying to cope to come out of the lingering effect of the pandemic (i.e. COVID-19) along with the Russia- Ukraine War, the inflation problems across the world along with tightening monetary policy are already affecting global economy for four (4) years. 

Along with this the ongoing conflict in the Middle East has increased geopolitical risks as well as uncertainty in commodity markets which may have impact on global economy. What will happen in 2024? How global economy is going to be in 2024? This World Bank Report is providing answers for these questions. Let’s get started.

Global Economy in 2024

According to the Report the Global GDP growth is estimated to decline for the third consecutive year. This is due the lag as well as the current effects of tight monetary policies to control decades-high inflation, strict credit (i.e. lending) conditions, and weak international trade growth as well as investment.

According to the World Bank’s Global Economic Prospects report the World’s GDP growth is set to slow down from 2.6% 2023 to 2.4% in 2024. This is nearly three quarters of a percentage point less than the 2010s average.

Developing economies are estimated to grow at 3.9% which more than 1% lesser than average of last decade. The low-income nations are estimated to grow by 5.5% – this is less than anticipated after disappointing performance last year. Almost 40% of low-income people and one out of every four developing countries will remain poorer by the end of 2024. This is more than what they were on the eve of the COVID pandemic in 2019.  GDP in advanced economies are estimated to grow slow from 1.5% in 2023 to 1.2% in 2024.

The report states that the near-term outlook are diversified, with a strong fundamentals shown by Emerging and Developing Economies (EMDEs) while the major economies shows a slower or subdued growth. The outlook of EMDEs remains uncertain and risky due to their high debt and financing costs. However, the downside risks to the outlook are negative.

The ongoing and recent conflict in the Middle East as well as the Russian Federation’s invasion of Ukraine has increased geopolitical risks. If the present conflict intensifies then it could inflate energy prices as a results increases inflation further and also have impact on global activity. Another major concern is high real interest rates – this brings financial stress. High Real interest rates, consistent inflation, weaker or slower than expected growth in China, increased trade fragmentation, and natural disasters linked to climate change.

With these challenging backdrop policy makers across the globe are set to face huge challenges. Strengthening International cooperation is required to provide debt relief particularly for the poorest countries, to tackle climate change as well as to promote energy transition, ease trade flows, and reduce food insecurity.

It is essential for EMDEs to provide a massive increase in investment of about $2.4 trillion per year to tackle climate change as well as to achieve key global development goals by 2030. The outlook for such an increase is not bright without a comprehensive package.  It is expected that per capita investment growth in developing economies between 2023 and 2024 to average only 3.7% – just over half the rate of preceding two decades.

The priorities of EMDEs Central Banks should be anchoring inflation expectations and to ensure the stability of the financial systems. High borrowing costs along with increased public debt limits fiscal space and pose major challenges to the EMDEs which are seeking to meet its investment demands as well as to achieve fiscal sustainability. The Strong Policy framework is essential for the commodity Exporters to face the volatility of commodity price. Structural reforms are required to not only boost long-term growth but also to increase investment, close gender gaps in labour market, and to increase productivity,

India Growth in 2024

During 2023, despite some slow down India shown a strong economic performance mainly due to energetic services sector along with robust public investment growth. Due to weak external demand Merchandise export have been slow down but domestic demand for consumer services as well as exports of business services sustained its growth.

For the Fiscal Year (FY) 2024-25 India is expected to grow at 6.4 percent after slowing down to 6.3 percent in FY 2023-24.  It is anticipated that there might be slow down in investment but still it will remain robust, mainly due to increased Government investment and improved corporate balance sheet.

My perspective

From the Report it is clear that the Global economy is going through a tough phase for the third consecutive year. The ongoing crisis in Middle East as well as Russia-Ukraine War is going to play big vital role in the Global Economic Activities. One cannot completely ignore these external factors while making policy for an economy. 

Monetary tightening may get loosen up in this year – which everyone around the world is looking for. This may reduce the financial stress and attract more investments which is necessary/ required for any economy to accelerate its growth. However, the word of caution for every economy is Fiscal Balance.

As far as India is concern things are looking better. The public investments are picking up and hopefully it should induce private investments this year. Exports are expected to increase as the global demand increases or restored. Inflation in India is expected to fall in the second quarter of this year. Its important year for India as it is going to be an Election year and most of the vital policy decisions will be made by the new formed government. Many policy decisions may also need to wait till new government is formed.

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