UN report predicts slower global economic growth for 2024

UNITED NATIONS - Global economic growth is projected to slow down from an estimated 2.7 percent in 2023 to 2.4 percent in 2024, according to the UN World Economic Situation and Prospects 2024 report, launched on Thursday.

Weakening global trade, high borrowing costs, elevated public debt, persistently low investment, and mounting geopolitical tensions put global growth at risk, says the report.

Growth in many developed economies, especially the United States, is projected to decelerate in 2024 given high interest rates, slowing consumer spending and weaker labor markets.

The short-term growth prospects for many developing countries, particularly in East Asia, Western Asia, and Latin America and the Caribbean, are also deteriorating because of tighter financial conditions, shrinking fiscal space and sluggish external demand.

Low-income and vulnerable economies are facing increasing balance-of-payments pressures and debt sustainability risks. Economic prospects for small-island developing states, in particular, will be constrained by heavy debt burdens, high interest rates and increasing climate-related vulnerabilities, says the report.

"In a nutshell, the world is struggling to get back to the 3.0-percent annual average from 2000 to 2019, representing years of sub-par growth," said Shantanu Mukherjee, director of the Economic Analysis and Policy Division of the UN Department of Economic and Social Affairs, at the launch of the flagship report.

This latest forecast came on the heels of global economic performance exceeding expectations in 2023. However, last year's stronger-than-expected growth masked short-term risks and structural vulnerabilities, according to the report.

Growth in the United States is projected to be 1.4 percent in 2024, following an estimated growth rate of 2.5 percent in 2023.

Robust consumer spending on the back of strong household balance sheets and resilient labor and housing markets supported the better-than-expected performance in 2023. Despite aggressive monetary tightening, the unemployment rate remained low. Robust house prices boosted and sustained the net worth of homeowners, exerting a strong wealth effect and supporting high levels of household spending. This may change quickly, especially if housing and asset prices drop and effectively reduce household net worth, says the report.

Amid falling household savings, high interest rates, and a gradually softening labor market, consumer spending is expected to weaken in 2024 and investment is projected to remain sluggish in the United States. While the likelihood of a hard landing has declined considerably, the US economy will face significant downside risks from deteriorating labor, housing and financial markets, it says.

Among major developed economies, the European Union will see a higher growth rate of 1.2 percent in 2024 from an estimated 0.5 percent in 2023. The Japanese economy will continue to slow, from 1.7 percent in 2023 to 1.2 percent in 2024.

For developing economies, growth will slightly drop from 4.1 percent in 2023 to 4.0 percent in 2024.

China's economy will slow down from the estimated 5.3 percent in 2023 to 4.7 percent in 2024. India's economy, which was estimated to have expanded 6.3 percent in 2023, will grow 6.2 percent in 2024, according to the report.

Global inflation is projected to decline further, from an estimated 5.7 percent in 2023 to 3.9 percent in 2024. Price pressures are, however, still elevated in many countries and any further escalation of geopolitical conflicts risks renewed increases in inflation, warns the report.

In about a quarter of all developing countries, annual inflation is projected to exceed 10 percent in 2024. Since January 2021, consumer prices in developing economies have increased by a cumulative 21.1 percent, significantly eroding the economic gains made following the COVID-19 recovery. Amid supply-side disruptions, conflicts and extreme weather events, local food price inflation remained high in many developing economies, disproportionately affecting the poorest households, it says.

According to the report, the global labor markets have seen an uneven recovery from the pandemic. In developed economies, labor markets have remained resilient despite a slowdown in growth. However, in many developing countries, particularly in Western Asia and Africa, key employment indicators are yet to return to pre-pandemic levels. The global gender employment gap remains high, and gender pay gaps not only persist but have even widened in some occupations.

In addition to raising interest rates, the central banks of major developed economies -- with the exception of the Bank of Japan -- started quantitative tightening in 2022 and accelerated the pace in 2023 to reduce excess liquidity. Monetary tightening, including quantitative tightening, in major developed countries will have significant spillover effects on developing countries, says the report.

Many developing countries continue to face high borrowing costs, constrained access to international capital markets, and depreciating exchange rates. Rising borrowing costs and currency depreciations have exacerbated debt sustainability risks in many developing countries. This is particularly concerning at a time when developing economies need additional external financing to stimulate investment and growth, address climate change-related risks, and accelerate progress toward the Sustainable Development Goals (SDGs), it says.

Global investment growth is likely to remain subdued and international trade is losing steam as a driver of growth, negatively affecting global growth, says the report.

The report calls for stronger international cooperation to stimulate growth and promote green transition.

Governments will need to avoid self-defeating fiscal consolidations and expand fiscal support to stimulate growth at a time when global monetary conditions will remain tight. Central banks around the world continue to face difficult trade-offs in striking a balance between inflation, growth and financial stability objectives. Developing country central banks, in particular, will need to deploy a broad range of macroeconomic and macroprudential policy tools to minimize the adverse spillover effects of monetary tightening in developed economies, says the report.

Robust and effective global cooperation initiatives are urgently needed to avoid debt crises and provide adequate financing to developing countries. Low-income countries and middle-income countries with vulnerable fiscal situations need debt relief and debt restructuring to avoid a protracted cycle of weak investment, slow growth and high debt-servicing burdens. In addition, global climate finance must be massively scaled up. Industrial policies should be readjusted to bolster innovation and productive capacity, build resilience and accelerate a green transition.

"2024 must be the year when we break out of this quagmire. By unlocking big, bold investments we can drive sustainable development and climate action, and put the global economy on a stronger growth path for all," said UN Secretary-General Antonio Guterres in the foreword of the report.

It is also time for an effective debt workout mechanism to free up fiscal space for investment in health, education, social protection, decent jobs, digital infrastructure and renewable energy, he said. "In 2024, we must seize the opportunity to create a more inclusive, resilient global economy that works for everyone, everywhere."