5 Events Shaping World Economics

Discover the hidden impact of significant events on the global economy. 

The global economy is governed by ever-changing policies, political shifts, and fluctuating market conditions. Innumerable pressing questions, trends, and events impact the state of the world economy. In the last few years, pivotal shifts and occurrences have shaken the global systems, shaping our lives.

Whether it’s the emergence of generative AI applications, rising debts, or slow economic growth, navigating these events is essential for proper risk management, sustainability, and development of the economy. 

In this article, we unveil and analyze the impact of some consequential events influencing the stability, adaptability, and evolution of the world economy.

Defining events that will impact the world economy in 2024.

1. Generative AI applications have become a movement

AI applications have taken the world by storm. One of the biggest technological trends, ChatGPT, has revolutionized how individuals and companies strategize and communicate. It has garnered ample attention and has become the heart of technological breakthroughs.

As innovative technical instruments, AI and other automation tools have been redefining the existing workforce and industry norms and will continue to do so in 2024. Although its use may increase productivity, it raises concerns about reskilling and job displacement. This poses a threat to the economic stability and inclusivity of different nations.

Key factors to remember: 

• AI will impact about 60% of jobs in advanced economies. 
• Emerging markets and low-income countries will experience about 40% and 26% AI exposure.

This will lead to one-half benefiting from increased productivity, while the other half will face potential displacement, leading to lower wages and reduced hiring.

2. Historical deal by COP28 to “transition away” from fossil fuels

An extraordinary yet historic agreement was made at the 28th UN Climate Change Conference (COP 28) in Dubai in December 2023. The attendees agreed to work to triple international renewable energy capacity by 2030 and safeguard our planet from rising temperatures. This was adopted to triple the global renewable energy capacity by 2030, protecting our planet from rising temperatures. The final agreement got clearance with the consensus of 200 members and is a crucial step to phasing out fossil fuel use in the energy system and reaching net zero emissions by 2050.

Key factors to remember: 

• 200 members have agreed to reach net zero emissions by 2050. This will mean increased innovation, growth, and development in sustainable fuel sources. 
• Additionally, it also opens up newer avenues to invest your funds in. 

3. Mounting debt crisis

The economic outlook for the global economy is not looking good in 2024.

According to the World Bank, debt servicing costs will increase by nearly 39% in 24 countries this year. 

Key factors to remember: 

• Most indigent countries will struggle to repay their whopping $3.5 trillion debt. They could also default in the absence of any resolution mechanism. 
• These markets, also called Frontier Markets, will have to repay nearly $200 billion of debt this year. 

This will force developing countries to choose between investing in infrastructure, education, public health, and servicing their public debts. 

Furthermore, any resolution to the debt crisis in 2024 will rely on key players like the World Bank, China, and the International Monetary Fund.

4. The Fed and other central banks cut interest rates

Sources claim that the US Fed will begin to cut interest rates in April 2024 due to the slower economy and the bugbear of inflation. 

The US economy experienced steady but slower growth, with a 5.2% expansion in the July–September quarter. This also happened to be the fastest pace since late 2021.

Key factors to remember: 

• Inflation was closer to the Federal Reserve’s 2% target, standing at 3.1% at the end of November. 
• Due to the anticipated economic conditions, experts expect at least three rate cuts in 2024. The monetary cycle will extend until the end of 2025. 
• Estimates suggest the Federal Reserve could implement a reduction of nearly 2.5% in interest rates over the next 18–24 months.

These rate cuts can help improve the world economy, as consumption and spending will experience a boost owing to the easing of monetary policies. By seeing the positive indicators, other central banks might implement the same policy. Additionally, this will help businesses with easy tax filing and cash flow management, as fluctuating interest rates can complicate these processes.

5. Growth may be subdued in developing and developed economies

The growth of many developed economies may decelerate in 2024. The cause could be a weaker labor market, policy tightening, high-interest rates, and restrictions on consumer spending. The growth of advanced economies is expected to grow by about 1.4% in 2024. It’s a slight downfall from its estimated growth rate of 1.5% in 2023. The only plus is that inflation is expected to come down as supply chain issues finally come under control after COVID-19. 

Key factors to remember: 

• As a result of slow external demand and tighter financial conditions, the short-term growth prospects of developing countries can also decline.
• Rising debt sustainability pressures and balance-of-payments risks adversely affect low-income and weak economies. Their growth is projected at around 4.0% in 2024. It’s a modest decline from 4.1% in 2022.
• Due to tighter monetary policies aided by lower international commodity prices, global inflation is projected to decline steadily. It will experience a downfall from 6.9% in 2023 to nearly 5.8% in 2024. 

Core inflation is expected to fall more gradually. Meanwhile, inflation is not projected to return to the target until 2025.

The final word

Many factors, like interest rate hikes, technological advancements, and government policies, influence the international economy. However, seeking advice from financial advisors, adapting to evolving trends, and encouraging inclusive policies and innovation can lead to a resilient and sustainable tomorrow.

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This material has been prepared for informational purposes only. Escalon and its affiliates are not providing tax, legal or accounting advice in this article. If you would like to engage with Escalon, please contact us here.

Authors

Bhavya Agarwal

Bhavya Agarwal is an ardent content writer who loves exploring the world of artistic expressions to create stories that are riveting. She has crafted fictive and engaging experiences for several renowned brands and helped them achieve their vision and mission. Besides storytelling, she can be found traveling the world, reading novels and watching anime to broaden her horizon of multiculturalism and studying different literary works.