New Year But No New Economy
Alexander Anderson is a first year student, majoring in both French and Spanish at UCL. (TDR’s Head Economics Editor) He interned at the Telegraph.
The opinions expressed in this article reflect the opinions of its author(s). They do not represent the views of UCL's Diplomacy Society, Diplomacy Review nor The Diplomat.
Introduction
2024 will be the year of upheaval. Covid has been seemingly marginalised and elections will uproot current policies in major democracies, including India, the UK and the US. The continuation of various conflicts, chief among them Israel-Palestine and Ukraine-Russia. In this climate, the global economy will continue experiencing shocks as side-effects of these various phenomena with 87% of Chief Economists expecting geopolitical conditions to stock volatility in the next three years. The January 2024 Chief Economists Outlook from the World Economic Form (WEF) calls the current context a “protracted weakness in global economic conditions”. Amind these conditions, the economy is hard to predict, but the reports from the world’s largest economic organisations, the WEF, the IMF (International Monetary Fund) and the World Bank are pessimistic, indicating that the global economic woes caused by the pandemic are far from over.
Regional Divergence, Inflation and Technology
The most significant conclusion of the Chief Economists Outlook by the WEF was that the global economy will “weaken over the next year” (56% of chief economists) with caveats of reduced inflationary pressures and progress in the field of artificial intelligence (AI). Most of
the respondents to the survey of chief economists expect the high inflation rates to fall as well as looser labour markets and financial conditions throughout 2024.
Continuing the trend from 2023, global headline rates of inflation (in the IMF’s report) are projected to fall to 5.8% in 2024 from 8.7% in 2022. This is extremely varied between various regions. The expectations for Sub-Saharan Africa being the most pessimistic (32% of respondents expecting high inflation) and China being the most optimistic with no expectations of high inflation. This geographical division is altered with Europe, Sub-Saharan Africa and China having the most pessimist expectations for economic growth in 2024.
The difference between China and the rest of East Asia in growth is attributed to weak consumption, distress in property markets and lower industrial production.
Further geoeconomic differences can be seen in increasing inequality in the North-South divide caused by geopolitlcal developments. This can be related to the launch of renewed protectionist tendencies world-wide, seen through the quadrupling of the number of protectionist measures over the last decade. The tens of billions spent on infrastructure, manufacturing and other large-scale initiatives globally in the aftermath of the american IRA and CHIPS Acts have raised uncertainty on supply-side policies - these help producers through increasing supply through tax credits and subsidies among others.
The final significant point of the outlook is technology or rather AI. Being a game-changer, it has lead to 50% of Chief Economists to the disruptive nature of generative AI tools, such as ChatGPT. In the Chief Economists Outlook of May 2023, generative AI was highlighted as a significant technological shift, presenting novel challenges for businesses and policymakers.
A notable 42% of respondents anticipated the technology to bring about commercial disruption by the close of 2023. In both high- and low- income economies, generative AI is expected to lead to increased efficiency.
Growth, EMDEs and the Middle East
The World Bank’s Global Economic Prospects for January 2024 only further explores the downsides of the coming year, calling the 2020s “a period of broken promises” and points to the immediacy of the UN Sustainable Development Goals (SDG) in 2030, which are now even further out of reach.
In 2024, the global economy is decelerating for the third consecutive year and is slowing down to 2.4%. The report credits these to tight monetary policies, weak global trade growth and restrictive financial conditions. Geopolitical events, such as the Middle East conflict, invasion of Ukraine, as well as the COVID-19 pandemic, have left their mark on growth, rapidly restricting growth in advanced countries well below to the average of the 2010s. Emerging market and developing economies (EMDE) are set to overtake the advanced economies by 2025 in terms of economic growth as an annual percentage change.
EMDEs, while in a better state than advanced economies, have subdued domestic demand and insignificant volume growth for good-exports. Global services activity, including tourism, have continued to grow, albeit slowing down.Good-exporting EMDEs are expected to lag behind service exports until 2025 at the least.
Despite the recent surge in tensions and heightened uncertainty stemming from the conflict in the Middle East, the Middle East and North Africa (MNA) region is anticipated to witness a growth of 3.5% in both 2024 and 2025, as long as there is no further escalation. Projections indicate that Saudi Arabia and the Gulf states are poised to experience growth exceeding 4%. However, Egypt is expected to face a slowdown, attributed to import restrictions that impede input access for both domestic production and exports. Meanwhile, Morocco, despite grappling with the significant humanitarian fallout from the September earthquakes, has managed to exhibit growth. The expectation is that poverty rates will stabilize in oil-importing nations, with both oil exporters and importers surpassing their 2010-2019 averages in GDP
until 2025. Notably, among other oil exporters, Algeria and Iraq are predicted to see an uptick in growth, fueled by the expansion of oil production resulting from relaxed production cuts in early 2024. Conversely, in the Islamic Republic of Iran and Libya, growth is anticipated to decelerate as oil production stabilizes.
In summary, 2024 presents a turbulent economic landscape marked by the lingering effects of COVID-19, geopolitical tensions, and shifting political dynamics. The World Economic Forum's outlook forecasts a weakening global economy, tempered by reduced inflation and advancements in AI. Regional disparities persist, with Sub-Saharan Africa and Europe expecting sluggish growth, while China remains optimistic. Geoeconomic differences and rising protectionism contribute to a widening North-South divide. AI, particularly generative tools like ChatGPT, emerges as a game-changer, with Chief Economists acknowledging its disruptive impact on efficiency in both high- and low-income economies. The World Bank's Global Economic Prospects for 2024 highlights a decelerating global economy due to tight monetary policies, weak trade growth, and geopolitical events. Emerging markets are poised to outpace advanced economies by 2025. Despite heightened tensions, the MNA region anticipates growth, led by Saudi Arabia and the Gulf states. However, regional variations persist, with challenges in some areas offset by resilience and growth in others.
