The world economy is poised for a significant slowdown in 2024, facing a confluence of challenges that include persistent inflation, high interest rates, and ongoing geopolitical conflicts. The Organization for Economic Cooperation and Development (OECD) has released its projections, estimating that global growth will decelerate to 2.7% in 2024, a decline from an expected 2.9% pace this year. This marks the slowest calendar-year growth rate since the tumultuous year of 2020.
While the OECD cautiously anticipates that most countries will manage to avoid recessions, it sounds a note of caution regarding potential risks tied to enduring inflation and continuing conflicts. Geopolitical events such as the Israel-Hamas war and Russia’s involvement in Ukraine could exert pressure on commodity prices, particularly in sectors like oil and grain.
One of the key contributing factors to this anticipated global economic slowdown is the expected deceleration of the two largest economies in the world – the United States and China. The U.S. economy is projected to expand by a mere 1.5% in 2024, down from the 2.4% growth experienced in 2023. This subdued growth can be attributed to a series of interest rate hikes implemented by the Federal Reserve, amounting to a total of 11 increases since March 2022.
Inflation, which had reached a four-decade peak in 2022, is expected to recede in the United States. The OECD forecasts a decline from the current year’s 3.9% to 2.8% in 2024 and 2.2% in 2025, hovering just above the Federal Reserve’s 2% inflation target.
China, on the other hand, faces its own set of challenges, including a real estate crisis, rising unemployment, and slowing export growth. The OECD projects China’s economic growth to moderate to 4.7% in 2024, down from 5.2% this year. Factors contributing to this deceleration include heightened savings as well as uncertainties surrounding employment prospects.
Within the Eurozone, comprising 20 countries that share the euro currency, growth is anticipated to remain feeble. The OECD estimates a collective growth rate of 0.9% in 2024, though this represents a slight improvement over the predicted 0.6% growth in 2023. The region has grappled with the impact of elevated interest rates and surging energy prices, largely stemming from Russia’s disruption of natural gas supplies.
Adding to the complexity of the global economic landscape are ongoing geopolitical tensions, such as the Israel-Hamas war. These tensions raise concerns, especially if conflicts were to escalate further, as they could potentially disrupt energy markets and major trade routes, introducing yet more economic uncertainty.
The global economy, despite weathering multiple shocks since 2020, faces a challenging outlook for 2024. Persistent inflation, high interest rates, and geopolitical conflicts cast a shadow over growth prospects. Navigating this intricate economic terrain will require careful monitoring by governments, businesses, and investors in the year ahead.
