World Economic Situation and Prospects Report for 2024

• 12 Jan 2024

For Prelims: United Nations, Inflation, Headline Inflation, El Nino, Net-zero-emissions, Artificial Intelligence, Loss and Damage Fund

For Mains: World Economic Situation and Prospects, Impact of Climate Change on Global GDP

Source: DTE

Why in News?

A recent United Nations report titled World Economic Situation and Prospects report for 2024 forecasts a decline in global inflation in 2024, but warns of a simultaneous rise in food inflation, particularly in developing nations.

• The implications of this phenomenon, coupled with climate-related challenges and geopolitical tensions, pose threats to food security, poverty alleviation, and economic growth.

What are the Key Highlights of the World Economic Situation and Prospects Report for 2024?

• Global GDP Growth:
  • The report forecasts a deceleration in global gross domestic product (GDP) growth, from an estimated 2.7% in 2023 to 2.4% in 2024.
  • Developing economies, in particular, are struggling to recover from pandemic-induced losses, with many facing high debt and investment shortfalls.
  • It is anticipated that many low-income and vulnerable nations will experience only moderate growth in the upcoming years.
    • The reasons are persistently high-interest rates, escalating geopolitical conflicts, slow international trade and an increase in climate-related calamities.
• India’s Perspective:
  • South Asia grew by an estimated 5.3% in 2023 and is projected to increase by 5.2% in 2024, driven by a robust expansion in India, which remains the fastest-growing large economy in the world.
  • India is projected to grow by 6.2% in 2024, supported by domestic demand and growth in manufacturing and services.
• Inflation:
  • Global inflation, a key concern over the past two years, shows signs of easing.
    • Global headline inflation fell from 8.1% in 2022 to an estimated 5.7% in 2023 and is projected to decline to 3.9% in 2024.
      • Headline inflation measures the total inflation within an economy, which includes commodities like food and energy prices.
    • The decline in inflation was attributed to ongoing moderation in international commodity prices and a decrease in demand due to monetary tightening by the UN.
  • However, food price inflation remains critical, exacerbating food insecurity and poverty, particularly in developing countries.
    • An estimated 238 million people experienced acute food insecurity in 2023, an increase of 21.6 million from 2022.
      • Weak local currencies, climate-related shocks and limited pass-through from international prices to local prices will be the causes of this ongoing increase in food inflation.
    • The resurgence of El Nino can disrupt climate patterns, leading to both excessive and insufficient precipitation affecting food production.
• Climate Change:
  • 2023 experienced extreme weather conditions, leading to devastating wildfires, floods, and droughts worldwide.
    • These events have direct economic impacts, such as damage to infrastructure, agriculture, and livelihoods.
  • Studies project significant economic losses due to climate change.
    • Estimates suggest a potential 10% reduction in global GDP by 2100, considering events like the Greenland ice shelf collapse.
    • Without mitigation, models indicate a potential 23% decrease in average global incomes by 2100.
  • IPCC estimates predict a range of 10 to 23% global GDP losses by 2100 due to temperature impacts alone.
• Investment:
  • Global investment growth is expected to remain low due to economic uncertainties, high debt burdens, and rising interest rates.
    • Developed nations prioritize sustainable sectors like green energy and digital infrastructure.
    • Developing countries grapple with capital flight and reduced foreign direct investment.
    • Geopolitical tensions impact regional investment flows, contributing to low global investment growth amid economic uncertainties and rising interest rates.
  • Investment in the energy sector, especially in clean energy, is growing but not at a pace sufficient to meet the net-zero-emissions goal by 2050.
    • Report estimates USD 150 trillion needed by 2050 for energy transition and infrastructure, requiring USD 5.3 trillion annually for the global energy sector alone.
    • Despite this, climate finance falls short of requirements, emphasizing the crucial need for massive scaling up.
    • The report calls for effective operationalization of the Loss and Damage Fund and increased financing commitments to aid vulnerable countries facing climate disasters.
• Labour Market:
  • The global labour market displays divergent trends between developed and developing countries post-pandemic.
    • Developed Countries:
      • Experienced a robust recovery with low unemployment rates, notably 3.7% in the US and 6.0% in the EU in 2023, coupled with rising nominal wages and narrowing wage inequality.
      • However, real income losses and labour shortages pose challenges.
    • Developing Countries:
      • Mixed progress with varied unemployment trends (e.g., China, Brazil, Türkiye, Russia report declines).
      • Persistent issues are informal employment, gender gaps, and high youth unemployment.
      • Globally, the decline in female labor force participation to 47.2% in 2023 (compared to 48.1% in 2013).
    • Artificial Intelligence(AI) Impact on Global Employment:
      • Since ChatGPT's introduction in 2022, AI adoption has rapidly advanced.
        • One-third of global firms now use generative AI, with 40% planning to expand AI investment.
          • AI could reduce demand for low-skilled jobs, disproportionately impacting women and lower-income countries. Also, there’s a significant gender gap in AI professions.
• Trade:
  • Global trade growth weakened to 0.6% in 2023, anticipated to recover to 2.4% in 2024.
    • The report points to a shift in consumer spending from goods to services, rising geopolitical tensions, supply chain disruptions, and the lingering effects of the pandemic as factors impeding global trade.
• International Finance and Debt:
  • Rising external debt and increased interest rates hinder developing countries' access to international capital markets.
  • Decline in official development assistance and foreign direct investment compounds financial constraints for low-income nations.
  • Debt sustainability becomes a critical concern, necessitating debt restructuring and relief efforts to manage escalating financial burdens effectively.
• Multilateralism and Sustainable Development:
  • The 2024 WESP report emphasizes the need for strengthened global cooperation, particularly in areas like climate action, sustainable development financing, and addressing the debt sustainability challenges of low- and middle-income countries.
  • The report underscores the critical role of multilateralism in navigating the complex global economic landscape and achieving the UN-mandated Sustainable Development Goals (SDG).