UNCTAD Forecasts Global Economic Growth To Stagnate At 2.7% In 2024 And 2025

The UN Conference on Trade and Development (UNCTAD) has forecasted that global economic growth will stagnate at 2.7 percent in both 2024 and 2025. This represents a decline from the 3 percent average annual growth seen between 2011 and 2019, and is significantly lower than the 4.4 percent average before the 2008 financial crisis. The report highlights that this "low normal" growth is inadequate to address urgent development and climate objectives.

High interest rates in developed countries, coupled with depreciating currencies in developing nations, are escalating foreign debt costs. This situation forces many governments to allocate export earnings towards debt repayment rather than development initiatives. The report stresses that these financial pressures are hindering progress on essential social services and energy transitions.

Trade's growth relative to GDP has slowed considerably since the 2008 financial crisis. From 1995 to 2007, trade expanded at twice the rate of global GDP. However, this momentum has waned, with merchandise trade contracting by 1.2 percent in 2023 despite overall economic growth. This marks a historic first for merchandise trade contraction during a period of economic expansion.

Services have emerged as a potential driver of economic growth, expanding at an annual rate of 5 percent. By 2022, services accounted for a quarter of global trade. While this shift offers opportunities, it also poses risks related to global inequalities, as developing countries contribute less than 30 percent to global services export revenues.

The global South experienced robust annual growth rates of 6.6 percent between 2003 and 2013, but this figure has dropped to 4.1 percent over the past decade. Excluding China, these economies have grown at an average of only 2.8 percent over the same period. This slowdown complicates efforts to expand social services and manage rising public debt.

The creative services sector exemplifies the uneven playing field in global trade dynamics. Valued at US$1.4 trillion in 2022, advanced economies dominate with an 80 percent share of exports in this sector. The increasing significance of intangible assets like brands and software further exacerbates these disparities.

Investment Trends

Investment in intangible assets surged three times faster than physical assets in recent years, reaching $6.9 trillion in 2023. This trend underscores the growing importance of non-physical assets such as data and patented technologies within global supply chains.

The UNCTAD report warns that without decisive action, disparities between wealthy and poorer nations will widen further. This could lead to increased social unrest and complicate efforts to tackle climate change effectively.

The report emphasizes that while developing countries require international support to overcome these challenges, they must also take proactive steps themselves. Diversifying economies, embracing new technologies, and building resilience against economic and environmental risks are crucial strategies for these nations moving forward.

With inputs from WAM