The world economy is still very 'resilient'

Despite gloomy forecasts, the global economy remains remarkably resilient, with steady growth and slowing inflation.

The IMF expects global GDP to grow by 3.2% and 3.3% in 2024 and 2025, respectively. (Source: Business Standard)

However, it has been a tumultuous journey, starting with supply chain disruptions following the Covid-19 pandemic, an energy and food crisis caused by the Russia-Ukraine conflict, a spike in inflation, followed by a global tightening of monetary policy and a bottoming out of global economic growth by the end of 2022.

Facing the “headwinds”

In its latest World Economic Outlook Update (July 2024), the International Monetary Fund (IMF) maintained its expectations for global GDP growth in 2024 and 2025 at stable levels - 3.2% and 3.3%, respectively, but the differences in growth dynamics between economies have narrowed significantly.

IMF experts say the world economy has shown surprising resilience in 2024. Since the beginning of 2024, the global economy has continued to face many shocks such as escalating geopolitical tensions, persistent high inflation, and tight monetary policy.

However, economies have held up well, showing good adaptation in the context of the "headwinds" coming in. Accordingly, 2024 marked an upturn in economic activity globally, "world trade activity increased at the beginning of the year, boosted by strong exports from Asia, especially in the technology sector", according to the IMF.

China and India are important drivers of this activity.

The world's second-largest economy's 2024 economic growth is revised up to 5% on recovering private consumption and strong exports, although the economy remains affected by a downturn in the real estate sector.

Meanwhile, India's economic growth is expected to reach 7%, driven by better consumption prospects and strong performance in the manufacturing sector.

The Eurozone is showing signs of recovery, with unemployment remaining at record lows, and the region's economy has emerged from recession with a better-than-expected 0.3% growth in the first quarter of 2024.

However, while many countries saw better-than-expected growth in the first six months of the year, IMF experts noted the case of the two leading economies, the US and Japan.

Specifically, the forecast for US economic growth in 2024 has been lowered to 2.6%, 0.1 percentage point lower than the forecast in April.

Japan's economy is expected to grow 0.2 percentage points less than previously forecast, to 0.7% this year, mainly due to temporary supply disruptions and weak private investment, the IMF said.

The future is not rosy

Overall, the risks to the economic outlook in 2024 remain relatively balanced, but some short-term risks have resurfaced. In the Global Economic Prospects report published in June 2024, World Bank (WB) experts specifically highlighted three risks, related to inflation, high interest rates, and geopolitical tensions.

Accordingly, the possibility of escalating conflicts in the Middle East and Russia-Ukraine tensions pose a major risk to global economic growth, putting pressure on markets and pushing oil prices and transportation costs higher. The Gulf is the world's most important source of oil, accounting for about 48% of reserves and 33% of global oil production. If a serious disruption in oil supplies from the Middle East occurs, it will have a direct negative impact on many economies.

According to WB experts, escalating conflicts could also negatively impact business and consumer sentiment, increase risk aversion, affect demand and indirectly hinder global economic growth.

Meanwhile, on the issue of high interest rates, the trend of easing monetary policy as forecast by the end of 2023 has almost subsided recently, as major central banks face the reality of more persistent inflation than expected.

Core inflation remains relatively high and is likely to remain so, said World Bank economist Ayhan Kose. This will prompt central banks in major economies to delay rate cuts. Global financial conditions will continue to tighten. Even with major central banks such as the ECB already cutting rates, there is not much room for further rate cuts between now and the end of the year.

In addition, another major challenge is the increasing trade tensions, in addition to the US-China “couple”, problems have emerged between China and the European Union (EU)... In May 2024, Washington announced a tariff increase on $18 billion worth of Chinese imports. Then, the EU announced additional tariffs of up to 38.1% on electric vehicles imported from China. These moves are likely to lead to retaliatory measures from China.

IMF analysts say the rise in trade restrictions, especially between the US, China and the EU, could be the biggest obstacle to the world economic recovery, causing major damage to the global economy. In the worst case, trade conflicts could cost the world economy up to 7% of GDP.

Meanwhile, World Bank experts warn that escalating trade tensions could also increase inflation risks in the short term, as they push up the cost of imported goods. Higher inflation could increase the likelihood that interest rates will remain high for longer, increasing financial risks.

Finally, analysts also worry that potential policy turmoil stemming from this year’s elections could spill over to the rest of the world, posing risks of fiscal erosion and debt distress, and fueling protectionism.

With a cautious view, WB Chief Economist Indermit Gill said that although global economic growth seems to be gradually stabilizing after a series of impacts from the Covid-19 pandemic, military conflicts, inflation and tight monetary policies... it is necessary to anticipate all events on this volatile journey, because the current growth rate is still lower than before 2020.

Source: https://baoquocte.vn/kinh-te-the-gioi-van-dang-rat-kien-cuong-283470.html