Economic Outlook: Growth Slows, Inflation Persists, Risks Remain

The United Nations Conference on Trade and Development (UNCTAD) has issued a stark warning, stating that an additional $8 billion to $28 billion annually will be required to decarbonize the global shipping sector by 2050. Furthermore, substantial investments ranging from $28 billion to $90 billion annually will be necessary to develop infrastructure for 100% carbon-neutral fuels by the same deadline.

The world economy is expected to see moderate growth in 2023, projected at 3.0%, but is anticipated to slow down slightly to 2.7% in 2024. This economic growth is largely driven by Asia, despite a weaker recovery in China than expected. However, global growth in 2024 is likely to be lower, primarily due to monetary policy becoming more visible and China’s subdued domestic demand, said OECD in its latest report.

ECONOMIC; HEADLINE INFLATION

While headline inflation has decreased in many countries, core inflation, excluding volatile components like energy and food, remains persistent and above central banks’ targets. There is a concern that inflation could continue to linger, necessitating further interest rate adjustments or a longer period of higher rates.

ECONOMIC; MONETARY POLICY

The world economy is expected to see moderate growth in 2023, projected at 3.0%, but is anticipated to slow down slightly to 2.7% in 2024. This economic growth is largely driven by Asia, despite a weaker recovery in China than expected. However, global growth in 2024 is likely to be lower, primarily due to monetary policy becoming more visible and China's subdued domestic demand, said OECD in its latest report.

Monetary policy tightening is gradually affecting economies, resulting in increased policy rates and higher borrowing costs for both corporate and mortgage loans. These higher borrowing costs, while challenging for households and businesses, are a typical channel through which monetary policy takes effect.

ECONOMIC; RISKS

Risks to the global economy remain tilted toward the downside. There is uncertainty surrounding the strength and speed of monetary policy transmission and the persistence of inflation. The adverse impacts of higher interest rates could be more significant than expected, potentially exposing financial vulnerabilities.

Governments face mounting fiscal pressures due to rising debt burdens and increased spending on areas such as aging populations, climate transition, and defence. Immediate efforts to rebuild fiscal space and establish credible medium-term fiscal plans are crucial for aligning macroeconomic policies and ensuring debt sustainability.

Structural policies must be revitalized to bolster growth prospects. This includes reducing barriers in labour and product markets and enhancing skills development, which can boost investment, productivity, labour force participation, and promote inclusive growth.

Reviving global trade is a top priority, as it is a source of long-term prosperity for both advanced and emerging-market economies. Concerns about economic security should not hinder efforts to reduce trade barriers, especially in the service sector.

Enhanced international cooperation is essential to achieving better coordination and faster progress in carbon mitigation efforts, addressing the urgent need for climate action on a global scale.

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