The growth rate of the world economy is expected to remain around 2.7 % in the year of 2024, and 2.8 % in 2025. As Kavan Choksi says, the global economic prospects have improved since January of 2024. The major economies avoiding a severe downturn, and are striving to bring down inflation without increasing unemployment. However, there are still many challenges experienced by the world economy.
Kavan Choksi sheds light on the challenges the world economy is experiencing
The everyday developments in the world economy are becoming increasingly complex in their implications. Right from Russia to China to Greece, economic shocks are now of extremely high concern, as traditional policy tools have already been used and financial resources are depleted to help economies recover from the last downturn. Therefore, strategic decisions have become extremely consequential.
Shocks are pretty much inevitable, but strategists need to find ways to extract the relevant signals from the noise, in order to better understand what lies over the horizon. There are several factors that have the potential to shift the global economy from one long-term outcome to another. In the near term, major economies across the world continue to struggle to achieve self-sustaining growth in aggregate demand, which has continued despite years of fiscal and monetary stimulus, along with a recent drop in oil prices.
Many of the major economies in the world are also experiencing certain long-term structural challenges, which include aging populations, inadequate infrastructure and rising debt. Failure and success in resolving such challenges shall determine the speed of long-term growth in these economies. Certain major economies have diverged in recent years. While global integration has driven convergence in the past, the prospects for further integration have become less certain. The global financial shock was followed by years of concerns over rising inequality and weak growth, while the path to stronger and renewed growth stays elusive. Due to the consequences of such interlinked factors, near-term developments have taken on significant importance.
There are multiple forces that may shape the global economy over the coming decade, stimulus policies and shifting energy markets being two of the major ones. The impact of these near-term forces can be felt on a daily basis. The other forces, like aging and urbanization, involve powerful, inexorable trends aggravating ongoing structural challenges. Technological innovation and global connectivity are two forces of uncertain and variable magnitude. These trends can intermittently disrupt and transform sectors.
As Kavan Choksi says, unlike the effects of demand stimuli and changes in energy markets, the impacts of urbanization and aging are foreseeable and are steering the global economy towards emerging markets. From Brazil to China, these economies are urbanizing at an extraordinary pace. Rural populations are being drawn to growing industrial opportunities and increasing growth, thereby boosting the economic significance of cities globally. The labour force crucial to economic activity is both aging and diminishing. In China, it is projected to decrease by 11% by 2050, even as the economy continues to grow. The decline in continental Europe is expected to be even more significant. Additionally, with increasing life spans and declining birth rates, an aging workforce in both advanced and emerging economies will need to support a growing number of retirees. Among major economies, only the U.S. has a demographic profile that supports long-term economic growth.
