The 2024 global economy grinds out better-than-expected performance

Despite a multitude of downside risks, global economic growth this year slightly exceeded the predictions of most forecasters. The latest forecasts from both the IMF and OECD now anticipate global economic growth this year of 3.2 % (outperforming the IMF’s earlier prediction of 2.9 % and the OECD’s 2.7 %). Inflation has slowed in most countries, giving central banks the possibility to relax monetary policy. Relatively high inflation for services keeps, however, overall inflation still elevated in many countries. The general drop in inflation and strong employment figures contributed to higher real household incomes that supported private consumption, particularly in the United States. The robust US economy also bolstered growth in global trade, which, according to the IMF and OECD, picked up from 2023 to over 3 % this year.

The IMF currently sees the global economy growing next year by 3.2 %, while the OECD expects growth of 3.3 %. Private consumption is expected to support growth, while accommodative monetary policies should boost fixed investment. On the other hand, many countries face large public deficits, and measures to reduce those deficits run the risk of depressing overall demand. Medium-term growth, due to lagging productivity gains and ageing populations has yet to recover to pre-pandemic levels. The IMF’s medium-term annual growth projection is 3.1 %, which is below the 2000–2019 annual average of 3.8 %.

The most recent growth forecasts are imperilled by exceptionally large downside risks as they are not yet accounting for the impacts on trade from the incoming Trump administration. While the future tariff policy of Donald Trump’s administration and possible retaliatory tariffs by other countries are still unclear, the uncertainty surrounding higher tariffs already weighs on fixed investment. Geopolitical tensions and escalating conflicts are also a major risk for the global economy. The course of the Ukraine war is critical to European development, and changes in situation in the Middle East could drive oil prices up or down. Oil prices are, however, facing downward pressures from weak global demand and increased production by non-OPEC members. The third factor to consider is the trend in private consumption next year. Despite gains in real wages, growth in private consumption this year was on average lower than expected in developed economies.