2024 Outlook: Slow growth, elevated inflation & geopolitical tensions to keep the world economy on its toes

This year has not been kind to the global economy. The Ukraine war led to soaring global inflation, forcing central banks to hike interest rates to highs not seen in decades. Geopolitical tensions between China and the United States have raised the spectre of trade fragmenting among allied blocks.

The disruption caused by Covid lockdowns continues to have lingering effects, seen via China's lacklustre growth and the rising debt burden. Add the ongoing tensions in West Asia to this mix, and the world has enough reasons to worry.

The world will welcome 2024 in a couple of weeks. But expectations of a brighter future may be far-fetched if Moody's latest outlook on 2024 is considered.

Moody's Global Macro Outlook 2024-25 suggests that the world economy will slow in 2024 as high-interest rates "percolate through credit channels to the real economy".

This means households would only feel the true impact of the high interest rates next year.

While the high-interest rates may help central banks reduce inflation, it won't be by the end of 2025 that prices will come under the tolerance limits of G-20 central banks.

Conversely, consumer demand will weaken in 2024 as central banks will likely maintain a tight policy stance. However, the report cautions policymakers about climate uncertainties or geopolitical events triggering volatility in energy and food prices in 2024.

The report particularly focuses on the G-20 nations, which account for at least 80 per cent of the world's Gross Domestic Product, 75 per cent of global trade, and two-thirds of the total population.

Moody's expects growth in the G20 countries to fall to 2.1 per cent in 2024 from 2.8 per cent in 2023. However, the pace of growth would be different across all the member nations.

Economic growth would fall from 1.7 per cent in 2023 to just one per cent in advanced G-20 economies -- these are also OECD members.

The growth in emerging markets of the G20 would fall from 4.3 per cent in 2023 to 3.7 per cent next year. But the true story lies in the fine print.

Economic growth will moderate in the United States while remaining "subdued" in the 20-nation euro zone area. China's economy- the world's second-biggest- is likely to decelerate from its 5 percent growth target in 2023 to 4 percent in 2024.

However, China's emerging rivals like India, Mexico and Indonesia will likely show resilience next year. In fact, at 6.1 per cent, India is expected to be the fastest-growing economy among the G20 nations.

The outlook is more complicated in South Africa, Türkiye, and Argentina, which are facing a prolonged economic downturn.

"South Africa's economy remains vulnerable to rolling power cuts, curtailing the productive capacity of the economy," says the report, while noting the uncertain economic outlooks for Türkiye and Argentina.

Türkiye's economy is expected to slow to 2.6 per cent in 2024, with inflation likely to recede slowly to 60% in 2024. But everything would hinge on a tighter monetary policy and the lira's stability.

Argentina's economy will be a mystery waiting to be unravelled in 2024. A lot would depend upon how the incoming Libertarian maverick Javier Milei responds to the South American country's economic challenges.

Geopolitical risks like the Israel-Hamas war in Gaza and the ongoing tensions between the US and China will be sources of uncertainty for the global economy next year.

If the ongoing conflict in Gaza spills over to the larger West Asia region, the world may see higher volatility in oil and gas prices.

"We expect oil prices to remain volatile in the $80-$90 per barrel range and periodically overshoot $90 due to increased geopolitical uncertainty," the report adds.

After the US ' export restrictions on semiconductors, China's tit-for-tat measure to impose export controls on graphite underscores the threat of trade tensions disrupting the global supply of critical materials.

But the tensions can also end up helping other emerging economies to emerge as supply chain hubs, with India, Brazil, Mexico and Indonesia "well-positioned to take advantage of this shift".