participants documented the instability of the global economy

The world economy is entering a period of unstable equilibrium, concluded the participants of the World Economic Forum (WEF), which ended in Davos. Rising inflation in the euro area and beyond will continue to slow in 2024, while global trade growth will accelerate. However, according to the general opinion of WEF participants, the equilibrium that the world economy will be able to achieve in 2024 will remain very unstable over the coming years. Its basis will be not so much the normalization of the situation in the world, but the adaptation of developed and developing countries to the “new normal.”

The WEF session on global economic prospects, which traditionally concludes the forum’s business program, this year was dedicated to finding a balance between ensuring sustainable economic growth and fighting inflation. As the head of the European Central Bank (ECB) Christine Lagarde recalled, price growth in the euro area has been slowing since April 2023 (in December it accelerated for the first time since then – to 2.9% from 2.4% in November). According to her estimates, global inflation will gradually decline. However, Ms. Lagarde refrained from making specific forecasts about the near future of the European economy, citing the fact that the ECB meeting on the rate will be held next week – the head of the regulator cannot give clear assessments before that. It is likely that interest rates will remain at current levels: this signal is contained in the minutes of the December ECB meeting published this week.

Christine Lagarde emphasized that based on the results of 2023, it can be stated that the economy has adapted to the new “rules of the game”, adjustments to which are still being made by increased geopolitical risks, a weakening labor market and a reduction in the excess savings accumulated by citizens during the pandemic.

We are not talking about normalization, but about a “new normal,” she noted.

The Director General of the World Trade Organization (WTO), Ngozi Okonjo-Iweala, agreed with the head of the ECB, noting that the restructuring of logistics began to be perceived by countries not as a challenge, but as an opportunity. According to her estimates, global trade growth in 2024 could accelerate to 3.3% after a preliminary 0.8% in 2023. Positive dynamics began to be recorded already in the fourth quarter of 2023. The WTO chief, however, recalled that global trade growth still lags behind global GDP growth. Among the factors slowing down trade, Ngozi Okonjo-Iweala named geopolitical conflicts and their consequences – in particular, the “tense situation” in the Red Sea.

It should be noted that this year, unlike last year, the participants in the final session practically did not discuss the problems of fragmentation of the world economy. The forum participants addressed the topic of increasing trade with friendly countries and reducing it with “politically unrelated” ones only in the context of economic relations between China and the United States. Singaporean President Tharman Shanmugaratnam insisted on the importance of resolving them: according to him, “common challenges” should bring the countries closer together. Let us explain that the Singaporean authorities need a weakening of the trade confrontation, among other things, in order not to choose a closer partner and to maintain cooperation with both Beijing and Washington.

The discussion of local problems affecting the global economy continued with statements by German Finance Minister Christian Lindner, who, against the backdrop of a decline in the country’s GDP at the end of 2023 (see “Kommersant” dated January 16) predicted a quick recovery of the German economy. Mr. Lindner called for Germany to be considered not sick, but only “the tired man of Europe,” indicating that he expects economic growth in Germany immediately after structural reforms.

According to the general opinion of WEF participants, the equilibrium that the world economy will achieve in 2024 will remain extremely unstable over the coming years.

The main conclusion of the final session of the forum is that, although everyone will be able to adapt to the “new normal” sooner or later, the resources that will be needed for this may not be enough to maintain sustainable and high-quality growth in the future.

Kristina Borovikova