The World Economy: Looking Back and Ahead

Zhang Yuyan
Xu Xiujun

I. The 2023 world economy in review
The year 2023 was one of turbulence, divergence and transformation, with the world economy continuing the downward trend of 2022. According to the estimate of the International Monetary Fund (IMF), the world economy grew by 3% in 2023, down 0.5 percentage points from 2022. In the same period, developed economies were under considerable downward pressure, expanding only 1.5%, down 1.1 percentage points from 2022. Buoyed by China's growth, emerging markets and developing economies experienced a moderate slowdown, growing 4%, down just 0.1 percentage points from 2022. Among them, China's economy grew by 5.4%, up 2.4 percentage points year on year.
The global situation has improved on employment and prices. In May 2023, the International Labour Organization (ILO) significantly revised its estimate of global unemployment, predicting a further drop to 191 million in 2023 and an unemployment rate of 5.3%, down 0.1 percentage points from 2022. According to IMF estimates, the global average inflation in 2023 was 6.9%, down 1.8 percentage points from 2022, and year-end inflation was 6.4%, down 2.5 percentage points from 2022. Falling commodity prices are one of the main factors driving prices down. According to IMF data, the global commodity price index was 164.45 in November 2023, down 14.4% from a year earlier and 32% from its August high. In the broader context of economic downturn and tightened monetary policy, global debt risk has built up at a high level. In September 2023, the Institute of International Finance (IIF) reported a record high of US$307 trillion global debt in the second quarter of 2023, with the global debt-to-GDP ratio climbing for two consecutive quarters to 336%. It is worth noting that the rise came after seven consecutive quarters of decline. In the first half of 2023, more than 80% of the new debts were incurred in developed countries, with the largest increases in the US, Japan, the UK and France. The US federal government debt has exceeded US$33 trillion, and stays on upward path.
At the same time, global trade and investment growth is anemic, and turmoil continues on global financial markets. In October 2023, the World Trade Organization (WTO) predicted a 0.8% year-on-year growth of global trade in goods in 2023, down significantly from April's forecast of 1.7%. According to the World Investment Report 2023 released by the United Nations Conference on Trade and Development (UNCTAD) in July 2023, global foreign direct investment fell 12% to US$1.3 trillion in 2022 from the previous year, and the possibility of a further decline in global foreign direct investment in 2023 could not be ruled out. In 2023, the dollar index continued its rise from the previous year, with many currencies falling further in response. At the end of October 2023, the US dollar index rose to 106.72, up 3.1% from the end of the previous year. The global stock market is more divided and volatile. While the stock markets grew significantly in Argentina, Venezuela, Egypt, and the United States, countries such as Thailand and Finland saw big losses on their stock markets.
II. Prominent features in the world economic Performance
Amid the downturn of the world economy, there have emerged new unstable and unpredictable factors as well as new developments and changes that merit attention in the following five respects.
First, the world economic growth has diverged significantly. IMF estimates show that growth in emerging markets and developing economies was 2.5 percentage points higher than that of developed economies in 2023, with a difference of one percentage point larger than the previous year. Emerging markets and developing economies are expected to grow at an average annual rate of 4% over the next five years, 2.3 percentage points higher than that of developed economies. At the same time, the divergence has expanded within both groups of emerging markets and developing economies and developed economies. Despite the sharp fall among developed economies, the US and Japanese economies have shown strong resilience. The US GDP grew 2.4% year-on-year in the first three quarters of 2023, higher than the full-year growth of 2022. Japan's economy is expected to grow 2.0% in 2023, up 1 percentage point from the previous year.
Second, disruptive technologies have brought profound and complex impacts. Among the emerging new technologies, artificial intelligence (AI) and its wide application are exerting a disruptive impact on the world economy and society. AI has revolutionized a full spectrum of sectors, ranging from simultaneous interpretation, personal assistants and autonomous vehicles to areas of concern including improved surveillance equipment and lethal autonomous weapons. At the same time, serious concerns have been expressed about AI perpetuating social discrimination, leading to mass unemployment, supporting oppressive surveillance and violating the norms of war. According to McKinsey, 50% of the companies deployed artificial intelligence in 2022, much higher than 20% in 2017.
Third, discriminatory regionalism is rising and spreading at a faster pace. At a time when economic globalization is facing strong headwinds, regional economic cooperation has become an alternative to trade and investment liberalization and facilitation. An IMF study notes that discriminatory regionalism is on the rise, especially in times of conflict, where regional trade agreements may erect walls against the outside world rather than lower walls internally. Discriminatory regionalism can also be used to achieve non-trade objectives such as raising labour and environmental standards, adopting domestic rather than global standards, and reorienting supply chains for national security reasons.
Fourth, the "de-risk" policy aggravates the risk of global economic decoupling. Since 2023, developed economies such as the EU and the US have moved from "decoupling" to so-called "de-risk", which is in essence an upgraded version of the "confinement" strategy, aiming to geographically contain non-Western powers, clamp down them by use of rules, hold back their development and demonize non-Western powers, and substantially push the global economy toward decoupling. The report released by the IMF in October 2023 concludes that the negative impact of the "de-risk" strategy of major economies would spread beyond China, and that China's comprehensive reform could have huge positive spillover effects.
Fifth, the Belt and Road Initiative (BRI) embarks on a new journey of a golden decade. Over the past decade, the BRI has yielded fruitful results and played an important role in promoting world economic growth and global sustainable development. In October 2023, the 3rd Belt and Road Forum for International Cooperation was successfully held, bringing together representatives from 151 countries and 41 international organizations and kicking off a new journey of Belt and Road cooperation in a golden decade ahead. At the opening ceremony of the forum, China announced eight major steps it will take to support high-quality Belt and Road cooperation, including building a multidimensional Belt and Road connectivity network, supporting an open world economy, carrying out practical cooperation, promoting green development, advancing scientific and technological innovation, supporting people-to-people exchanges, promoting integrity-based Belt and Road cooperation, and strengthening institutional building for international Belt and Road cooperation. The eight major steps proposed by China and the 458 deliverables reached by all parties during the forum will provide stronger impetus for world economic growth and global common development.
III. Outlook for the world economy in 2024
Global inflation has eased for the moment, but there are still many short-term and long-term factors that may lead to global economic downturn. The contractionary effects of monetary policy adjustment in major economies such as the US and the EU are playing out. Developed countries are facing challenges to the strength and stability of their financial systems. Governments or corporate default risks are on the rise. Adjustment of supply chains is continuing at the corporate and national levels. Trade protectionism and resource nationalism are rampant. Great power rivalry is turning to a negative sum game that hurts all parties. Labor supply is dwindling in major economies. The impact of technological progress on economic growth and stability is uncertain. The cost of de-carbonization remains high for the global economy. The pandemic leaves a scar on the world. Geopolitical conflicts such as the Ukraine crisis and the Palestinian-Israeli conflict are flaring up. These developments may have a negative impact on the world economy and hinder impetus for global growth. The positive trend of the global economy is mainly buttressed by major emerging countries, which have played an increasingly important role in leading global growth on the back of their sound development foundations and great development potential.
In addition, driven by external shocks and internal shifts of growth drivers, the world economy has entered a period of deep transformation. The following five trends of far-reaching significance have emerged. First, the "re-globalization" of the world economy. The escalating great-power competition is reshaping and transforming global rules, reallocating global resources, and reorganizing the system of global division of labor. Second, the digitalization of global production and exchange. In the global technological innovation, most technological breakthroughs have taken place in the information and digital fields. With the increasingly wide application of digital technology, new industries and new forms and models of business continue to emerge, accelerating digital economy and trade. Third, the shift of global economy toward low carbon. To work out a proper balance between socio-economic development and environment protection, countries are exploring innovative technologies, institutional reform and industrial transformation to reduce the consumption of high-carbon energy such as coal and oil and slash greenhouse gas emissions. Fourth, the politicization of international economic and trade relations. Some developed economies are keen to view state-to-state economic and trade relations through the lens of geopolitics and national security, politicize normal economic and trade relations, and play up economic security threats on domestic and diplomatic occasions. Fifth, the diversification of the international monetary system. More and more countries are planning or have implemented "de-dollarization" programs, which are manifested in the shift from the US dollar to local currency settlement in cross-border trade and investment, the decreasing share of the US dollar in foreign exchange reserves, and the consideration of alternative currencies to the US dollar.
The above factors point to downward pressure on the world economy in 2024. In June 2023, the World Bank predicted world economic growth of 2.4% in 2024, down 0.3 percentage points from its January forecast. In September, OECD forecast that the world economy would grow 2.7% in 2024, 0.3 percentage points lower than in 2023. In October, IMF predicted that the world economy would grow 2.9% in 2024, down 0.1 percentage points from 2023, with 1.4% in developed economies, 1.5% in the US, 1.2% in the euro zone and 1% in Japan, and that emerging and developing economies would grow 4%, China 4.6%, India 6.3%, Brazil 1.5%, Russia 1.1% and South Africa 1.8%.
In short, there are many factors affecting the world economy in 2024. One of the key variables is whether major economies such as China and the US can work together to address global economic challenges. In the current international economic and political contexts, the world economy will still be on the track of medium-low growth in 2024, with a growth rate of 2.7% in purchasing power parity terms. The emerging markets and developing economies will still grow notably faster than developed economies, and the possibility of a significant decline in world economic growth due to drastic fluctuation in major developed economies such as the US cannot be ruled out. 

Zhang Yuyan is Member of the Academy Board and Research Fellow of the Institute of World Economics and Politics of Chinese Academy of Social Sciences,  and Professor of the School of International Politics and Economics of the University of Chinese Academy of Social Sciences.
Xu Xiujun is Research Fellow of the Institute of World Economics and Politics of  Chinese Academy of Social Sciences.