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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