May 18, 2024

The Daily Industry

Business Blog

Kavan Choksi Finance Expert Discusses How The Global Economy Remains Resilient Despite The Challenges

The global economy has managed to stay remarkably resilient, despite the gloomy predictions. It is experiencing steady growth with inflation slowing almost as quickly as it rose. As Kavan Choksi Finance Expert underlines the several challenges experienced by the global economy in the recent past, starting from supply-chain disruptions in the aftermath of the pandemic to the energy and food crisis triggered by Russia’s war on Ukraine. A significant surge in inflation was also seen in many parts of the world, followed by a globally synchronized monetary policy tightening.

Kavan Choksi Finance Expert sheds light on the growth experienced by the global economy despite the challenges

Right after median headline inflation peaked at 9.4 %, global growth bottomed out at the end of 2022 at 2.3%. As per World Economic Outlook projections, growth in 2024 and 2025 is likely to hold steady at 3.2%. The median headline inflation is also likely to decline from 2.8% at the end of 2024 to 2.4% at the end of 2025; with most indicators pointing to a soft landing. The United States economy has already managed to surge past its pre-pandemic trend. However, low-income developing countries are likely to struggle more, as many of them are still struggling to turn the page from the pandemic and cost-of-living crises. 

Rapid disinflation and resilient growth point towards favorable supply developments, including the fading of energy prices shocks, as well as a striking rebound in labor supply supported by strong immigration in several advanced economies. Monetary policy actions have helped anchor inflation expectations even if its transmission may have been more muted, with fixed rate mortgages becoming increasingly prevalent. However, even with these developments, many challenges persist and decisive actions are required. Even though inflation trends are encouraging, one must also note that progress toward inflation targets has somewhat stalled since the start of 2024. While this can be simply a temporary setback, it is imperative to stay vigilant.

Kavan Choksi Finance Expert mentions that the recent strong performance of the United States reflects robust employment and productivity growth, and also underlines strong demand in an economy that remains overheated. As a result, the Federal Reserve requires maintaining a cautious and gradual approach to easing. The fiscal stance is especially a matter of concern, as it is out of line with long-term fiscal sustainability.

As tight monetary policy and past shocks weigh on activity, growth in the euro area may rebound but from very low levels. Ongoing strong wage growth and continued inflation in services could prolong the time it takes for inflation to reach the target level. However, unlike the situation in the United States, there is not much proof of overheating, and the European Central Bank must handle the transition to monetary easing with caution to prevent falling short of the inflation target. Although labor markets seem robust, this strength might not be sustainable if European companies have been holding onto excess labor in anticipation of an economic upturn that does not materialize.

Several major emerging market economies are performing strongly, and at times benefiting from a reconfiguration of global supply chains and rising trade tensions between China and the United States. The footprint of these nations on the global economy is increasing.