With a fresh start of 2025, today’s article aims to delve into the
economic review of 2024. The global economy displayed remarkable resilience in
2024, navigating through a landscape marked by geopolitical uncertainties,
shifting financial conditions, and evolving consumer dynamics. While challenges
persist, the year has largely been characterized by stabilizing growth and
moderating inflation, setting a cautiously optimistic tone for 2025.
Growth Trends and Regional Performance
Global output expanded at an estimated annualized rate of 3.2% in
the first half of 2024. Declining inflation supported household spending,
offsetting the dampening effects of restrictive monetary policies and
geopolitical tensions. Advanced economies like the United States and Japan
posted strong recoveries, with the former buoyed by real wage gains and the
latter rebounding from earlier supply chain disruptions.
However, not all advanced economies fared equally well. Germany
experienced subdued growth due to weak industrial activity and elevated saving
rates. Emerging markets presented a mixed picture: while Brazil, India, and
Indonesia saw robust domestic demand, Mexico’s growth slowed as its services
sector lost momentum. Meanwhile, China’s economy faced a protracted correction
in its real estate sector, although strengthening exports provided some
support.
Sectoral Dynamics and Trade
The services sector outpaced manufacturing globally, driven by a
post-pandemic rebalancing of demand. Business surveys highlighted strong
activity in services, although manufacturing faced headwinds from high
inventory-to-sales ratios in advanced economies.
Global trade showed signs of recovery, with trade volumes in goods
and services strengthening, particularly in the second quarter. An uptick in
U.S. imports and dynamic trade activity in emerging markets like China and
India contributed to this growth. However, logistical challenges, including the
closure of the Red Sea route and congestion at key Asian ports, led to
increased shipping costs, which have begun to ease but remain elevated.
Labour Markets and Wage Dynamics
Labour market pressures eased in 2024, with job vacancies per
unemployed worker returning to pre-pandemic levels. Increased immigration
bolstered labour supply in countries such as the United States, Canada, and
Australia. Wage growth moderated in many regions, except Japan, where
significant base pay increases drove up earnings.
Despite easing labour shortages, sluggish productivity growth in
Europe kept unit labour costs high, while the United States benefited from
strong productivity gains, stabilizing labour costs in key sectors.
Inflation and Financial Conditions
Inflation continued its gradual decline, driven by falling food and
energy prices. Headline inflation in most countries approached central bank
targets, although sticky services price inflation remained a concern. In
regions like Mexico and Brazil, currency depreciations exerted upward pressure
on prices, while China’s inflation stayed remarkably low.
Financial conditions eased as markets anticipated
faster-than-expected policy rate reductions. Long-term nominal bond yields
declined, and equity markets strengthened in the U.S. and emerging economies
like India and Brazil. However, tight bank lending standards and high levels of
corporate and sovereign debt posed risks to financial stability.
Climate Change and Its Economic Implications
The State of the Climate Update 2024 underscored the urgency
of addressing climate change. Greenhouse gas concentrations continued to rise,
driving long-term temperature increases and making 2024 likely to surpass 2023
as the hottest year on record. Ocean heat content reached unprecedented levels,
contributing to sea level rise and fuelling extreme weather events such as
intense storms, record-breaking rainfall, and severe droughts. The Antarctic
and Arctic Sea ice extents remained well below average, reflecting rapid
changes in the climate system.
These climate impacts have significant economic implications,
disrupting agriculture, infrastructure, and energy systems worldwide.
Addressing climate change requires a dual approach: limiting global warming by
striving to stay well below 2°C above pre-industrial levels and intensifying
efforts to adapt through enhanced climate services and early warning systems.
Investments in resilience are critical to mitigating the economic risks posed
by our changing climate.
Outlook for 2025
Global growth is projected to stabilize at 3.2% in 2025, supported
by easing monetary policies and declining inflation. Advanced economies are
expected to benefit from improved real incomes and policy rate reductions,
while emerging markets like India and Indonesia will likely sustain robust
domestic demand.
Inflation in advanced economies is anticipated to align with central
bank targets by late 2025, while emerging markets are expected to see a gradual
decline in price pressures. Risks remain, including geopolitical tensions,
persistently high debt levels, and potential financial market disruptions.
Conclusion
2024 has underscored the global economy’s resilience in the face of
adversity. While challenges persist, the progress made in stabilizing growth
and controlling inflation offers hope for a more balanced and sustainable
economic trajectory in the coming year. At the same time, addressing the
pressing challenge of climate change remains paramount to ensuring long-term
economic stability and environmental sustainability.
References
International Monetary Fund.
(2024). IMF Annual Report 2024. International Monetary Fund.
OECD. (2024). OECD Economic Outlook,
Interim Report – Turning the Corner. OECD.
World Meteorological Organization.
(2024). State of the Climate 2024 – Update for COP29.
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