Pakistan Economic Survey

The global economy demonstrates remarkable resilience, characterized by steady growth as inflation gradually moves towards the target. This journey has been marked by significant events, including supply chain disruptions in the wake of the pandemic, a Russian-Ukraine conflict leading to a global energy and food crisis, and a substantial surge in inflation. Furthermore, central banks worldwide have synchronized their monetary policy tightening efforts. Despite numerous pessimistic and gloomy forecasts, the global economy capably avoided a recession. The banking system demonstrated reasonable resilience, with major emerging market economies managing to avoid abrupt halts. Furthermore, the inflation surge, despite its severity and the resulting cost-of-living crisis, has now been on a downward trajectory.

Global economic growth has slowed down from 3.5 percent in 2022 to 3.2 percent in 2023 and is projected to continue at the same pace in 2024 and 2025, below the historical (2000–19) annual average of 3.8 percent. Global inflation is expected to fall from 6.8 percent in 2023 to 5.9 percent in 2024 and 4.5 percent in 2025. In response to inflationary pressures, major central banks have implemented restrictive policy measures by raising interest rates.

Consequently, mortgage expenses have surged, and credit accessibility has diminished, posing challenges for firms seeking to refinance their debt. This situation has contributed to subdued investment activities in both business and residential sectors across various economies.

In the United States, growth is projected to increase to 2.7 percent in 2024, as it is expected to maintain the strong momentum seen in 2023 when growth reached 2.5 percent. On the other hand, China, amidst both domestic and international challenges, is forecasted to undergo a moderated growth rate, with projections dipping from 5.2 percent in 2023 to 5.0 percent in 2024. Meanwhile, both Europe and Japan are grappling with significant economic headwinds, with growth rates expected to hover around a modest 1.0 percent for both regions in 2024. Developing economies are struggling to recover from the impacts of the pandemic, grappling with high debt levels and investment shortfalls. Although Africa expects a slight improvement in growth from 3.4 percent in 2023 to 3.8 percent in 2024.

It is noteworthy that the Least Developed Countries (LDCs) are still falling short of the 7.0 percent growth target outlined in the SDGs. The persistent challenges of high debt and limited fiscal space highlight an urgent need for coordinated efforts to address these issues and foster sustainable and inclusive economic growth. The momentum of international trade as a catalyst for growth is waning, evidenced by a slowdown in global trade growth to 0.3 percent in 2023. However, resurgence is anticipated, with projections indicating a recovery to 3.0 percent in 2024. In 2023, severe weather conditions, notably the hottest summer on record since 1880, resulted in wildfires, floods, and droughts across the globe. These events impacted the economy, causing significant damage to infrastructure, agriculture, and livelihoods.

Geopolitical tensions have emerged as the predominant risk facing the global economic landscape. Presently, conflicts in Eastern Europe and the Middle East, critical hubs for global food and energy distribution, pose imminent challenges. The specter of escalating tensions in the Middle East evokes profound concern, particularly considering the region’s pivotal role, accounting for nearly 30 percent of the world’s oil production. Recent disruptions in the Red Sea have already hampered shipping via the Suez Canal, which facilitates almost 30 percent of global container traffic. The challenge for policymakers lies in securing macroeconomic stability and sustaining debt levels while navigating geopolitical hurdles and promoting growth in the medium term.

Heightened geopolitical tensions exacerbate market uncertainties, impeding investment flows and hindering economic growth. A surge in oil prices could ensue if tensions in the Middle East intensify. Such an occurrence would amplify global inflationary trends and impede global growth. Copper prices have recently reached a two-year peak due to supply concerns and indications of stronger global industrial output.