Global economy update

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How the world economy welcoming 2025

Analytics - منذ 1 شهر

Amid the global shifts - global economy & expectations for 2025

South Eye | Analysis

As of January 3, 2025, the global economy is navigating a complex landscape characterized by modest growth, persistent inflationary pressures, and evolving geopolitical dynamics. Recent data and analyses provide insights into the current state and future projections of the world economy.

Global Growth Projections

The Organisation for Economic Co-operation and Development (OECD) forecasts steady global GDP growth of 3.1% for 2024, maintaining the same rate as in 2023, with a slight uptick to 3.2% anticipated in 2025. This stability reflects resilience amid tight monetary conditions, particularly affecting housing and credit markets. Notably, the OECD unemployment rate remains low at 4.9%, indicating robust labor markets.

In contrast, RSM's analysis projects a more conservative global growth rate of 2.5% for 2025. This projection considers the sluggish recovery from the pandemic and the impact of anticipated higher import taxes in the U.S., especially on goods linked to Chinese supply chains. Developed economies are expected to grow between 1.25% and 1.75%, while emerging markets may see growth rates between 3.5% and 4%.

Regional Economic Outlooks

• United States: The OECD projects U.S. GDP growth at 2.6% in 2024, slowing to 1.8% in 2025, as the economy adjusts to high borrowing costs and moderating domestic demand.

• Euro Area: A gradual rebound is expected, with GDP growth projected at 0.7% in 2024 and 1.5% in 2025, supported by recovering household incomes and tight labor markets.

• Japan: Steady recovery is anticipated, with GDP growth of 0.5% in 2024 and 1.1% in 2025, driven by stronger real wage growth and accommodative monetary policy.

• China: Moderate slowdown is projected, with GDP growth of 4.9% in 2024 and 4.5% in 2025, influenced by fiscal stimulus and export dynamics.

Global inflation is expected to ease gradually, with OECD projections indicating a decline from 6.9% in 2023 to 5.0% in 2024, and further down to 3.4% in 2025. This trend is attributed to tight monetary policies and diminishing pressures from goods and energy prices. Central banks are anticipated to maintain restrictive stances in the near term, with potential for policy interest rate reductions as inflation subsides.

Geopolitical and Trade Considerations

The global economic landscape is significantly influenced by geopolitical tensions and trade policies. Economists warn that protectionist measures, such as those proposed by the U.S., could hinder global growth, overshadowing potential benefits from domestic economic agendas. Additionally, disruptions in energy supplies, exemplified by the cessation of Russian gas exports through Ukraine, pose challenges to European energy dynamics, though immediate consumer price impacts may be mitigated.

Risks and Uncertainties

Several risks could impact the global economic outlook:

• Persistent Inflation: Higher-than-expected inflation may delay reductions in policy interest rates, affecting financial stability.

• China's Economic Performance: Weaker growth in China, due to property market issues or limited fiscal support, could have global repercussions.

• Geopolitical Tensions: Escalating conflicts, particularly in the Middle East, could disrupt economic activity and trade flows.

Policy Recommendations

To navigate these challenges, the OECD suggests:

• Prudent Monetary Policy: Maintaining restrictive policies until inflation is durably contained, with readiness to adjust as conditions evolve.

• Fiscal Responsibility: Addressing rising debt levels and spending pressures through efficient public spending and optimized tax revenues.

• Structural Reforms: Implementing policies to enhance human capital, foster innovation, and improve labor market opportunities, particularly for underrepresented groups.

So, while the global economy shows signs of steady growth, it faces a complex array of challenges and uncertainties. Careful policy management and international cooperation will be crucial in sustaining economic stability and fostering resilience in the face of evolving global dynamics.