The global economic outlook has improved since January, with major economies avoiding a severe downturn, according to World Economic Situation and Prospects as of mid-2024, released by the UN.
The world economy is now projected to grow by 2.7 per cent in 2024, instead of 2.4 per cent forecasted earlier, on the back of better-than-expected performance of the United States economy and some improvement in the outlook for several large emerging economies. The modest gain in the growth momentum is partly offset by the downward revisions of the growth outlook for the European Union, Africa, and Western Asia. On balance, the near-term economic outlook is only cautiously optimistic as economic vulnerabilities remain, amid persistently high interest rates, continuing geopolitical tensions, and increasing climate risks.
The world economy is also grappling with challenges to accelerate the transition to net zero emissions. Technological breakthroughs – especially in renewables and batteries, requiring extraction, processing and use of critical minerals – has opened up new opportunities for boosting economic growth and achieving the Sustainable Development Goals, especially in mineral-rich developing economies. Taking advantage of such opportunities and avoiding a renewed “resource curse” will require sound national policies and effective implementation capacities.
These countries cannot do it alone. An enabling international environment and stronger international cooperation will be essential to harness the potential of critical mineral resources and accelerate progress towards sustainable development.
Global overview
The global economic outlook has improved since the previous forecast released in January 2024.
Despite the most aggressive monetary tightening in decades, a scenario of hard landing of the United States economy has largely receded. Most major economies have managed to bring down inflation without increasing unemployment and triggering a recession. However, the outlook is only cautiously optimistic as higher-for-longer interest rates, debt difficulties, and escalating geopolitical risks will continue to challenge stable and sustained economic growth. Ever-worsening climate shocks continue to pose additional challenges to the global economic outlook, threatening decades of development gains, especially for least developed countries and small islands developing States.
The breakneck pace of technological change – including in machine learning and artificial intelligence – presents new opportunities and risks to the global economy, promising to boost productivity and advance knowledge on the one hand, while exacerbating technological divides and reshaping labor markets on the other.
The world economy is now forecast to grow by 2.7 per cent in 2024 (an increase of 0.3 percentage points from the forecast in January) and 2.8 per cent in 2025 (an increase of 0.1 percentage points). The upward revisions mainly reflect improved prospects in the United States of America and several large developing economies, notably India and Brazil. However, the economic outlook for many African countries has deteriorated since the last release. On average, global growth in the coming years is expected to remain below the average of 3.2 per cent during 2010-2019.
Recent high-frequency data indicate improving trade performance since the last quarter of 2023. In February, the global Purchasing Managers’ Index moved to the expansionary zone for the first time since August 2022.
Monetary and fiscal policies: trends and challenges
Monetary policy
In the first quarter of 2024, the majority of central banks maintained their policy rates unchanged, closely watching the policy decisions of the United States Federal Reserve and the European Central Bank. Despite expectations for both central banks to pivot to interest rate cuts in the second half of the year, the timing and magnitude of monetary easing remain uncertain as inflation remains above the central bank targets. Government bond yields in the United States and the euro area trended upward recently as quantitative tightening measures increased bond supplies to the markets. The central banks that peg their currencies to the United States dollar are expected to closely follow the Federal Reserve’s policy decisions. The European Central Bank’s policy shift will affect the Central African Economic and Monetary Community and the West African Economic and Monetary Union.
Deviating from the predominant “wait and see” monetary policy stances, central banks in Armenia, Azerbaijan, Brazil, Chile, Colombia, Costa Rica, Czechia, Georgia, Hungary, Kazakhstan, Paraguay, Peru, Republic of Moldova, Sri Lanka, Tajikistan, and Ukraine implemented additional rate cuts in the first quarter of 2024 after initiating monetary easing in 2023. In addition, central banks in Argentina, Ghana, Israel, Mexico, Mongolia, Mozambique, and Switzerland pivoted to the easing phase during the first quarter of 2024. After lowering the five-year loan prime rate and the reserve requirement ratio in the first quarter of 2024, the People’s Bank of China is expected to maintain an accommodative stance.
In contrast, central banks in Angola, Egypt, Kenya, Malawi, Nigeria, Tanzania, Turkey, Uganda, Venezuela (Bolivarian Republic of), and Zambia continued monetary tightening with additional policy interest rate hikes during the first quarter of 2024. Tight external financing conditions and balance-of-payments constraints increased depreciation pressures, prompting central banks to tighten monetary policy to defend the value of the national currencies. The Bank of Japan has signaled the possibility of further interest rate hikes after abandoning the negative policy rate regime in March 2024 to stabilize the Japanese yen, which has constantly been under pressure during the past year.
Fiscal policy
The COVID-19 pandemic and global energy and food crises stretched the limits of public finances across all country groups, exacerbating fiscal pressures and debt challenges in many economies. In the aftermath of these shocks, high levels of public debt, rising interest costs and subdued economic growth constrained fiscal space. At the same time, public spending pressures continued to increase. Aging populations are pushing up pension, healthcare, and long-term care costs, while governments are facing growing demands to increase policy support for high-tech industries, climate adaptation, and green energy transition. In addition, ongoing military conflicts in Ukraine and the Middle East, and rising geopolitical tensions worldwide, have prompted many countries to increase defense spending. This trend is likely to continue, and may even accelerate, in the coming years, potentially crowding out public investments in sustainable development.
The general government debt-to-GDP ratio globally stood at an estimated 94.4 per cent in 2023. While this rate is slightly below the 2020 peak, it is 11 percentage points above the pre-pandemic level in 2019 and 35 percentage points higher than before the global financial crisis in 2007. With interest rates expected to stay higher for longer, especially in the United States, the costs of servicing government debt will remain a challenge, absorbing a growing share of fiscal revenues in many developing countries and diverting public funds away from health, education, social protection, and sustainable infrastructure.
In 2024, governments in Africa are projected to spend on average more than a quarter of total public revenues on interest payments. Debt service burdens are particularly high in several large economies, most notably Angola, Egypt, Kenya, Nigeria, Senegal, South Africa, and Zambia. Interest payments are also projected to further increase from an already high level in the SIDS, reaching 15.9 per cent of revenues in 2024. By contrast, the share of interest expenditures in government revenues remains low in most developed economies and economies in transition, except for the United States, where net interest costs are estimated to reach about 10 per cent of government revenues in 2024.
Against this backdrop, most countries are projected to gradually tighten fiscal outlays in 2024-25 to improve debt sustainability and rebuild fiscal buffers. In 2024, 31 out of 37 developed economies are projected to see an increase in the general government cyclically adjusted primary balance, implying a tightening of the fiscal stance. In the United States, fiscal policy is expected to be roughly neutral over the next few years, after providing moderate support to growth in 2023. The European Union recently adopted reform of the fiscal governance framework, aiming to provide more flexibility in reducing deficits and giving more ownership to member States. Many developing country governments are pursuing gradual fiscal consolidation after phasing out support measures to fight the pandemic and the cost-of-living crisis. In Africa, governments are generally aiming to maintain a tight fiscal stance as countries are struggling with large public debt burdens and large fiscal deficits, ranging from an estimated 4.6 per cent of GDP in Egypt to 6.4 per cent in South Africa and 8.6 per cent in Algeria. In China, the government is expected to maintain a proactive fiscal policy to support economic growth in 2024, including significant new spending on science and technology, new infrastructure, and low-carbon transition.
India’s government remains committed to gradually reduce the fiscal deficit, while seeking to increase capital investment. In Latin America and the Caribbean, most countries have also embarked on fiscal consolidation, aiming to improve debt sustainability through better-targeted and more efficient spending.