The International Finance Forum (IFF) Global Year 2023 opened in Nansha, Guangzhou, on the same day, the Global Finance and Development Report 2023, which forecasted a further slowdown in global economic growth in 2023 due to a significant tightening of global monetary policy to contain inflation. The ongoing negative impact of the Russian-Uu conflict and the new coronary pneumonia epidemic have also constrained economic recovery. The global economy is expected to grow by 3.1 per cent in 2023, down from 3.4 per cent in 2022.
For 2024, global economic growth is expected to remain weak at 3.1 per cent, with 1.3 per cent growth in developed countries and 4.3 per cent growth in developing economies, as monetary policy and financial conditions continue to tighten.
On the ground, the Co-Chairs of the International Finance Forum (IFF) and Vice-President Zhou Xiaochuan of the Twelfth China Political Consultative Conference called for greater coordination and cooperation in addressing the economic challenges facing the world today. Countries should maintain the right direction of globalization, reject protectionism, defend multilateralism, avoid the construction of strong barriers, break chains and economic coercion, strengthen the coordination of their macroeconomic, financial and regulatory policies and avoid new imbalances caused by unilateralism and unilateral sanctions.
In 2023, global inflation slowed against the backdrop of tight monetary policy, a slowdown in global growth, a fall in world commodity prices (especially energy prices) and continued improvements in global supply. In 2024, global inflation is expected to slow to 5.8 per cent as a result of the continued stifling of demand growth by tight monetary and financial conditions and the further easing of supply-side bottlenecks caused by the epidemic, with inflation projected at 2.8 per cent in developed countries and 7.8 per cent in developing economies.
According to the report, the global economic outlook is affected by several downside risks, including that inflationary pressures may be more persistent; that monetary and financial tightening may lead to more bank failures and financial instability in developed countries and further deepen the debt problems of developing countries; that geopolitical tensions may increase, leading to further fragmentation of geo-economics and geo-finance; and that China, which accounts for one third of global economic growth, is likely to grow less than expected. If these risks materialize, global economic growth will fall short of expectations and global inflation will rise above expectations.
Economic prospects for the next two years: Asian growth is still ahead of the world.
Global economic growth slowed further in 2023, following a sharp fall in 2022, as countries tightened their monetary policies to contain inflation. The ongoing Russian-Uu conflict and the lingering negative impact of the new coronary pneumonia epidemic have also limited the pace of economic recovery.
The current market consensus is that the global economy will grow by about 3.1 per cent in 2023, down from 3.4 per cent in 2022 (using national weights at PPP rates). Of these, developed economies will grow by 1.5 per cent and developing economies by 4.1 per cent.
The global economy will continue to recover in 2024, but remains weak. The new coronary pneumonia epidemic has finally come to an end and no longer constrains global economic growth. The monetary tightening cycle is likely to end in 2024 in most countries.
Among the major regional economies, developing countries in Asia will grow by 5.2 per cent in 2023 and 2024; high-income regions in Asia will grow by 2 per cent and 1.7 per cent, respectively, in those years; developing countries in Europe will grow by 1.7 per cent and 2 per cent, respectively; the EU will grow by 0.8 per cent and 1.5 per cent, respectively; Latin America and the Caribbean will grow by 2.4 per cent and 2.4 per cent, the Middle East and North Africa by 2.9 per cent and 3.2 per cent, and North America by 1.9 per cent and 1.2 per cent, respectively.
Among the major economies, the United States economy is expected to grow by 2 per cent in 2023, slightly below 2.1 per cent in 2022; growth is expected to slow to 1.2 per cent in 2024. The main risk to future economic growth in the United States is that if monetary austerity ends too soon, inflation will rise again; if monetary austerity ends too late, the economy will fall into recession, leading to more bank failures and increased financial instability.
The EU economy is expected to grow by 0.8 per cent in 2023 and 1.5 per cent in 2024, all below 3.7 per cent in 2022. A major risk to future economic growth in the EU is the escalation of the Russian-Uu conflict, which has led to a sharp rise in energy prices and a significant decline in consumer and business confidence.
China ' s economy is expected to grow by 5.2 per cent in 2023 and 5 per cent in 2024. The recovery in economic growth was mainly due to the return to normality as a result of the elimination of the dynamic zero-sum policy of the new coronary pneumonia epidemic at the end of 2022. The main risks to future economic growth in China include a downturn in the real estate sector that exceeds expectations, a further increase in local government debt pressure and weak external demand.
Four risk points for sustained global growth
The report argues that the next global growth risk will be major in four areas.
First, inflationary pressures may be more persistent. The prevailing view in the market is that global inflation will continue to decline and will decline to near the central bank target or the long-term average before the outbreak in the second half of 2025 or 2026. However, several factors may lead to inflation remaining high in 2024 and beyond. Core inflation may be more persistent than expected. For example, labour-market tensions can put upward pressure on wages, and continued higher-than-target inflation can also take long-term inflation expectations off the anchor. The escalation of the Russian-Uu conflict could have a greater impact on the global energy and food markets.
Second, the financial dilemma could expand and deepen globally. To contain inflation, central banks around the world have raised interest rates to levels that have not been seen for many years. The high interest rates and the tight financial environment have restrained demand growth and inflation, but have also increased the burden on households, businesses and high-debted Governments, as well as on financial institutions that provide large fixed-interest loans during periods of low interest rates. The direct impact of the debt distress on developing countries and the indirect impact on developed countries could reduce global economic growth, if not trigger a global financial crisis.
Thirdly, geopolitical tensions could lead to greater geo-economic and financial divisions. The Russian-Uu conflict and Western sanctions against Russia have had a significant impact on world commodity markets and are some of the main factors in the global high inflation and economic slowdown.
At the same time, geopolitical tensions are leading to geo-economic and financial fragmentation, with measures often implemented in conjunction with so-called long-armed jurisdictions, which are weakening global trade and cross-border capital flows, limiting the diffusion of technology and the flow of skills, and increasing production, business and financing costs, thus constraining global economic growth.
Fourthly, China ' s economic growth may still face uncertainty. China ' s economic data for recent months have been unsatisfactory owing to weak household consumption, declining housing investment and shrinking exports. Although the Chinese Government had recently introduced a series of policy measures to stimulate domestic consumption and encourage private enterprise investment, it remained to be seen how long those measures would bear fruit.
China ' s economy, which accounts for more than 18 per cent of the global economy (purchasing power parity (PPP) rates), contributes about one third of global economic growth and is the world ' s largest trading power. It is a major trading partner for more than 140 countries and regions worldwide. If growth in China fails to meet expectations, it will have a significant impact on global growth.