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Globally, advanced economies are facing a significant slowdown attributed to notably higher interest rates, taking a toll on economic activities worldwide, as noted by the Organization for Economic Cooperation and Development (OECD). The OECD projects a global GDP growth of 2.7% in 2024, down from 2.9% in 2023. This downturn is prevalent across advanced countries, and a recovery is anticipated only in 2025, as real incomes rebound from the impact of inflation, and central banks begin to reduce borrowing costs.

In a similar vein, the International Monetary Fund’s (IMF) report titled ‘World Economic Outlook - Navigating Global Divergences, October 23,’ indicates a baseline forecast of global growth slowing from 3.5% in 2022 to 3.0% in 2023 and 2.9% in 2024. Advanced economies are expected to experience a slowdown from 2.6% in 2022 to 1.5% in 2023 and 1.4% in 2024 due to tightening policies. Emerging market and developing economies are projected to see a modest decline in growth from 4.1% in 2022 to 4.0% in both 2023 and 2024. Global inflation is forecasted to decrease steadily, from 8.7% in 2022 to 6.9% in 2023 and 5.8% in 2024, aided by tighter monetary policy and lower international commodity prices.

Core inflation is expected to decrease gradually, with a return to target levels not anticipated until 2025 in most cases. Maintaining anchored inflation expectations is crucial, with current focus on monetary policy actions and frameworks. However, disruptions in global trade, particularly in commodities, can impact commodity prices, economic activity, and the progress of the green energy transition.

Despite strong consumer spending fueling growth in Asia’s three largest economies, there are indications that the region’s recovery might be losing momentum. The IMF predicts an acceleration in growth for Asia and the Pacific, remaining unchanged at 4.6% this year, primarily due to the post-reopening recovery in China and better-than-expected growth in Japan and India during the first half of the year. With pandemic restrictions lifted, demand in these economies received a boost from consumers depleting savings accumulated during the pandemic, resulting in notable strength in the services sector.

However, the current growth falls considerably short of pre-pandemic projections, and a series of global shocks has hampered output. The IMF has revised down its growth forecast for the next year to 4.2%, a reduction from the 4.4% estimate made in April.

This less optimistic evaluation stems from indications of decelerating growth and investment observed in the third quarter, partly attributed to diminished external demand due to the global economic slowdown, particularly evident in Southeast Asia and Japan. Additionally, a decline in real estate investment in China contributes to the challenges. Despite experiencing an economic upturn post-reopening, China is currently experiencing less momentum than initially anticipated. Historically, the drag from China would have been counterbalanced by expectations of swifter growth in the USA and Japan; however, any resulting boost is expected to be less pronounced this time.

The strength of the US economy has been concentrated in the service sector, rather than in goods, which does not fuel greater demand for Asia. US policies, such as the ‘Inflation Reduction Act’ and ‘CHIPS and Science Act,’ are redirecting demand toward domestic sources, strengthening domestic supply chains, creating jobs, and protecting competitiveness, innovation, and national security in the semiconductor sector, rather than foreign sources. This provides a smaller boost to imports from Asia.

While the global economy continues its recovery from the impacts of Covid-19, Russia’s invasion of Ukraine, and last year’s energy crisis, the divergence in growth trends points to mediocre medium-term prospects due to escalating geopolitical fragmentation, increasing interest rates, extreme weather events, and falling fiscal supports. IMF Chief Economist Pierre-Olivier Gourinchas highlighted that IMF research indicates a 10% rise in oil prices would slightly dampen global output by approximately 0.2% in the subsequent year and elevate global inflation by around 0.4%. The total global output in 2023 is projected to be 3.4%, equivalent to approximately $3.6 trillion, falling below pre-pandemic projections.