Slower economic growth for third consecutive year; India’s growth expected to be marginally lower than 2023
The latest data released indicates a contraction in global merchandise trade, shrinking to about a per cent during 2023 due to the blockage of the Panama Canal, Black Sea and Red Sea. Photo for representation: iStock Global trade dynamics are expected to remain sluggish in 2024, United Nations Conference on Trade and Development (UNCTAD) has warned. The trade agency has alerted of a deceleration in growth for the third consecutive year in a new report.
UNCTAD had projected slower global economic growth in 2023, but the risks that threatened this growth did not entirely materialise. Countries such as China, India, Indonesia, the USA and the Russian Federation, among others, “escaped financial trouble” that had loomed earlier in the year.
The report stated that the world economy grew by 2.7 per cent, a 0.2 per cent increase from the threshold of 2.5 per cent, which is analogous to the global recessionary phase.
“UNCTAD’s latest projections indicate global growth of 2.6 per cent in 2024, slightly slower than in 2023. This marks the third consecutive year in which the global economy will grow at a slower pace than before the pandemic, when the average rate for 2015–2019 was 3.2 per cent,” the report said.
It stated that the concerning aspect of the estimated pace is that ornate consumption is expected to drive global growth at a rate of 4 per cent. However, total income is expected to increase by only 2.6 per cent. The report warns that patterns experienced since the 2000s indicate that rapid consumption growth is funded by borrowing.
It projected that although the savings of more affluent households have reached pre-pandemic 2020 levels, debt will be the driving force behind financing a large share of consumption.
“Data point to a dismal performance of private investment globally in 2023 and an even worse one projected for 2024,” the report noted.
The report found that the majority of central banks in advanced economies or developed nations increased interest rates in early 2022 to fight inflation. However, these economies failed to recognise the supply chain disruptions caused by COVID-19 and increased market dominance, resulting in higher prices and profits.
It observed that in 2023, inflation decreased with stable employment opportunities, but real wages continued to be below pre-pandemic levels and falling behind productivity growth.
Noting the challenges in international trade, it observed that although the global economy expanded by 2.7 per cent in 2023, the latest data released indicates a contraction in global merchandise trade, shrinking to about a per cent during 2023.
The contraction is attributed to the blockage of the Panama Canal, Black Sea and Red Sea, impacting merchandise trade routes, owing to climate change-induced drought in the canal and the war between Russia and Ukraine, as well as Israel and Palestine.
In 2024, slow growth is expected to persist throughout the year, even though prospects seem brighter. The report warns of increasing protectionism by countries, trade tensions and the continuation of geopolitical uncertainty.
Moreover, the report stated that developing countries are struggling with a significant amount of debt and development challenges, along with shrinking aid flows.
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“Between 2021 and 2022, net transfers on public and publicly guaranteed debt from private creditors switched from an inflow of over $40 billion to an outflow of nearly $90 billion, exposing flaws in the current debt and financial architecture,” the report said.
UNCTAD has urged the formation of a strong global financial safety net and the establishment of effective multilateral frameworks to address sovereign debt issues.
The report mentioned that commodity prices in 2023 showed a downward trend, with energy and metal costs hovering around 40 per cent above the average compared to 2015 to 2019. They are likely to continue this downward trajectory.
Regarding international food prices, the report expects them to remain stable or marginally lower in 2024, considering the risks of geopolitical tensions in conflict zones including the Black Sea, crucial for wheat, oilseeds and maize. It also considers extreme weather conditions as a risk due to climate change.
However, increasing fertiliser costs are expected to keep food production costs on the higher end, limiting yields for financially constrained growers. Food insecurity remains an acute concern across developing countries such as Africa and Asia compared to their developed counterparts.
“If current market trends persist, some 600 million people would be chronically undernourished by 2030, according to projections by the Food and Agriculture Organization of the United Nations,” the report noted.
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Regarding India, the report stated that the economy grew at 6.7 per cent in 2023 and is expected to be marginally lower at 6.5 per cent in 2024.
It noted that the expansion in 2023 was influenced by strong public investment and the services sector, which received a boost from robust local demand for consumer services along with assured external demand for business services exports.
The Reserve Bank of India is expected to keep interest rates constant in the near term, while restrained public consumption spending will be offset by strong public investment expenditures, it observed.
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