Perhaps the most notable focus of 2023 was the fight against global inflation. Despite the sharp rise in interest rates, the world economy showed remarkable resilience and, contrary to the predictions of many, the recession anticipated last year failed to materialize. 

A few months into 2024, the world is cautiously optimistic: inflation is receding while growth continues to exhibit tenacity, reducing the likelihood of a dreaded “hard landing.” However, several significant issues lie ahead, which will undoubtedly shape the trajectory of the global economy throughout the year.

Confronting Inflation

The global inflation shock, which took root in advanced economies in 2021 and spread worldwide in 2022, marked the most critical inflationary upheaval since the “Great Inflation” of the 1970s. Numerous countries saw inflation rates soaring to levels not seen in decades. While it may be premature to declare a complete victory, recent data indicates prices have been coming down worldwide over the past year, although many still remain above target. 

There is a possibility that the great inflation scare of the post-pandemic era could soon come to an end. In December, US Fed policymakers signalled their intention to implement three interest rate cuts this year. However, as we navigate the “last mile” of disinflation (which implies that inflation initially declines swiftly and subsequently more slowly), a persistent rise in prices and the ongoing elevated interest rates will continue to exert a drag on the global economy throughout 2024.

Soft Growth

Thanks to unexpected resilience in the face of rising interest rates, the global economy is now moving towards a “soft landing.” However, the World Bank has warned of a projected slowdown for a third straight year, putting the world on track for the worst half-decade of GDP growth in 30 years by the end of 2024. 

Notably, the world’s two largest economies, the US and China, are expected to face decelerated growth in 2024. The US is expected to see a slowdown due to the lingering effects of a tight monetary policy, while China is grappling with its lowest growth in more than three decades (excluding those affected by the Covid-19 pandemic). Despite a slowing China, Asia will continue to serve as a driver of global economic expansion. Robust inflows of foreign direct investment into India and some ASEAN nations are expected as multinational corporations diversify their manufacturing supply chains. 

Looking ahead, with ongoing disinflation and a loosening of monetary policy, the global economy is on the path towards economic normalization as it gradually recovers from the disruptions of recent years and takes on long-term challenges.

Increasing Volatility

The world is witnessing an alarming surge in violent conflicts – the highest number since the Second World War. The ongoing war in Ukraine, as well as the rise in tensions across Africa and the Middle East, all pose significant risks. The Red Sea, important for maritime trade, has recently emerged as a hotspot for geopolitical tensions, bringing back memories of the supply chain disruptions and surging commodity prices that were rife during the pandemic years.

Adding to the complexity of the situation, 2024 is set to be the biggest election year in history. More than 60 countries, which are home to almost half of the world's population, will hold national elections. These include seven of the 10 most populous countries – India, the US, Bangladesh, Indonesia, Pakistan, Russia and Mexico. The outcomes of these elections, combined with ongoing armed conflicts around the globe, will undoubtedly shape the geopolitical landscape in the months to come.

Climate Crisis

2023 marked a significant milestone in climate history – it emerged as the hottest year on record. Yet, scientists are already predicting that 2024 could be worse, thanks to increasing emissions and the impact of the El Nino weather phenomenon. January 2024 has already seen record-breaking high temperatures both on land and at sea, further highlighting the pressing nature of the climate crisis.

Towards the close of 2023, the United National Climate Change Conference (COP28) took place in Dubai, the United Arab Emirates, where a groundbreaking roadmap for “transitioning away from fossil fuels” was approved, marking it a historic first for a UN climate conference. While this step is crucial, there is still much work to be done on the journey towards achieving a net-zero future. As we venture into 2024, the climate crisis will undoubtedly continue to be an international focal point, sparking ongoing discussions across various global forums. The urgency to address climate challenges and implement effective strategies that mitigate its impacts will persistently remain at the forefront of the agenda.

Doris Fung, [email protected]