Rising geopolitical competition will weigh on growth potential, the Economist Intelligence Global Economic Outlook says.
The report says that the Israel-Hamas war is adding complexity to a global geopolitical environment that is characterised by intensifying competition and more frequent conflict, and underlying these changes is the diffusion of global power and greater uncertainty over the direction of the US foreign policy.
“We believe that geopolitical tensions, as also stoked by Russia’s invasion of Ukraine and US-China rivalry, will lead to more fragmentation and regionalisation in the world economy, dragging on growth potential. Government policy, including sanctions and the provision of new industrial incentives, will push firms to adopt more inefficient supply chains and also stoke global trade tensions. The escalation of current conflicts in Asia, Europe or the Middle East would upend our global outlook,” the report further says.
While the report raises the earlier global real GDP growth forecast for 2024 from 2.3% to 2.4%, Europe has seen biggest change in geopolitical tensions, but no region has been immune, while Red Sea disruptions are putting pressure on global sea freight rates.
2024 FORECAST
According to the forecast, growth in 2024 will be basically unchanged from an estimated 2.5% in 2023, and although growth remains sedate by historical standards, this stability demonstrates resilience in the global economy, given high interest rates and geopolitical tensions.
“Relatively high interest rates will constrain global economic activity, but there are no indications of systemic debt strains that could pull the world economy into recession. The impact on the US economy of monetary policy tightening has been less than we expected, helped by a strong labour market, and we have revised up our real GDP growth forecast to 1.8% in 2024 (from 1.3% previously),” the report says.
Momentum in Europe will remain lacklustre in 2024 but a recession will be avoided, whereas moderate stimulus in China will build some momentum in its economy. Emerging markets will generally benefit from an expected shift to looser global monetary settings in the second half of the year and a rebound in global trade. We forecast global economic growth of 2.4% in 2024 (at market exchange rates), almost unchanged from an estimated 2.5% in 2023.
“The outlook improves in 2025-28 (we expect annual growth to average 2.7%), aided by monetary easing and investment in technology and the energy transition, but growth will still fall short of recent standards—global growth averaged 3% a year in the 2010s,” the report says.
IMPACT ON POLITICS
The economic situation will have diverse effects on the politics of different regions, as the austerity measures required to repair public finances and insulate governments from higher borrowing costs will be unpopular.
“Political support for moderate, liberal policies will remain weak, and economic policymaking will generally push in a more insular direction, to the disadvantage of international co-operation on climate, technology and trade issues. The 2024 US election will highlight political and cultural division, and would prompt a sweeping set of policy changes if the former president, Donald Trump, were to win the presidency for the Republicans (this is not our baseline forecast, but the risk of it occurring is very high),” the Economist Intelligence says.
In Europe, politics is moving towards the right in response to economic and migration pressures, while authoritarian regimes will face challenges of their own, and governance in many parts of the world will be challenged by threats ranging from climate change to terrorism.
