COURSE: MCO 203 Global Economics for Managers

Professor: Jas Bagri

Student Name: Nairmalya Suryadevara Program/Year: MBA /

2023

Date of submission: 25/02/2024

Mid Term Assignment

Academic Year 2023-2024
Term II
GLOBAL OUTLOOK OF 2024-25

Word count: 2387

DECLARATION BY STUDENT

I hereby undersign that the work submitted is my own effort. I certify that

all material in this assignment, which is not my own work, has been

identified and acknowledged. No materials are included for which a

degree has been previously conferred upon me.

Geneva, 25/02/2024

Student Signature Place/Date

1
Grade awarded:

Signature of faculty

TABLE OF CONTENTS

1. EXECUTIVE SUMMARY 3

2. INTRODUCTION 4

3. POLITICS AND POLICY 5

4. INFLATION AND BANKS 7

5. GLOBALISATION 8

6. RISING DEBTS 9

7. INEQUALITY AND INCLUSIVE GROWTH 10

8. CURRENCY FLUCTUATIONS 12

9. TRADE WARS 13

10. CONCLUSION 14

11. REFERENCES 15

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 GLOBAL OUTLOOK

The Global Economy post-COVID in the near future.

EXECUTIVE SUMMARY

The global economic outlook must tackle numerous familiar risks around uneven

recoveries, inflation persistence and financial stability concerns alongside newer

challenges related to technology access, climate disruptions and regional tensions.

Key economic variables like election cycles, interest rates, debt sustainability,

inequality trends, globalisation headwinds constitute crucial dimensions shaped both

by domestic policy choices and international coordination.

This analysis finds global growth continuing at moderate paces on strong momentum

although risks remain skewed to the downside without vigilance around issues like

inflation expectations getting unanchored or financial conditions tightening

drastically. Priorities like healthcare access, social protection floors, re-skilling

workers can assist smooth economic transitions. Structural reforms in areas like

trade, infrastructure and digital access offer promising pathways to augment

productivity and inclusion.

Foster collective action around challenges like pandemics prevention, cyber norms,

climate resilience and food security reduces risks of fragmentation across technology

and geopolitical fault lines. Leadership that aligns incentives behind shared interests

and global publics goods can balanceY manages domestic priorities without losing

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sight of mutual gains through coordination. Ensuring all countries shares fruits of

progress in an equitable manner remains paramount to sustainability.

Overall prudent globally coordinated policymaking focused on resilience allows

realising prosperity amidst uncertainty. But absence of multilateral cooperation risks

repeats crises and lost potential across human capital and innovation frontiers.

Progress lies in embracing reforms and technology with an eye on social equity

through international partnerships - not unilateral perspectives.

INTRODUCTION

Making exact predictions about the global economy one to two years from now is

very difficult because there are many uncertain factors that interact with each other.

These uncertain factors include political changes, business cycles, new

technologies, climate change impacts, and geopolitical tensions. With so many

complex and interconnected uncertainties, foreseeing the precise economic outlook

that far ahead poses many challenges. Events like the COVID-19 pandemic show

that risks can easily escape models and predictions. However, analyzing key factors

around growth drivers, obstacles, and risks provides useful understanding of

baseline trajectories and potential solutions that can improve resilience against

volatility.

Importantly, in an increasingly globalised and inter-connected world, a country's

economic outcomes are more sensitive to global linkages through trade, supply

chains, movement of money and people, climate impacts, and technology access.

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This highlights the huge value of global coordination and joint action to avoid harmful

spillovers and cascading risks. However, competing priorities in their domestic state

of economies often override these shared interests between countries in reality. The

core challenge lies in bringing balance across multiple transitions happening with

technology, climate, and inequality, while balancing international cooperation with

self-determination.

This paper examines global headwinds and rare but big risks like uneven economic

recoveries, inflation, conflict, financial conditions, and technology access. These will

shape overall economic performance in 2024-2025. It highlights major trade-offs

policymakers face regarding economic stimulus measures, reforms, inequality, and

providing global public goods. Finally, it suggests principles and issue areas where

coordinated incentives and inclusive cooperation can support and shape resilient

outcomes despite major uncertainty.

POLITICS AND POLICY: NAVIGATING A PIVOTAL USA ELECTION

2024 marks an important juncture in US politics as President Biden faces Donald

Trump or another Republican nominee in November. The elections occurs against a

backdrop of polarisation across partisan lines on issues like trade, technology

tensions with China, domestic investment priorities, and America's global leadership

role. The winning side's policy pathway will have significant economic ramifications

on the whole world:

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If President Biden wins, he may double down on boosting domestic manufacturing,

clean infrastructure incentives and skilled immigration with a possibility of corporate

tax raises. Trade confrontation with China could ease somewhat (Democrats, 2024).

In contrast, a Republican administration likely scales back green transitions,

reverses Trump-era confrontational trade policies while cutting domestic spending

and regulation (Republicans, 2024).

Either outcome generates volatility as policy and legislative shifts unsettle market

expectations and business plans continuity around investment, hiring and supply

chain geography. Currency fluctuations, inflation variability, stretched valuations in

some asset categories like renewable energy and fiscal deficits trajectory constitute

other areas of uncertainty from changing political winds.

However, strong structural tailwinds around productivity-enhancing technological

adoption moderate underlying US growth and buffer from politics compared to other

countries with this cushion. Demographic trends, household savings rates, debt

reduction tendencies will continue steering fundamentals regardless of distraction

(IMF, 2022). Thus, the growth implications from elections centre more on

composition and distribution rather than denting aggregate outcomes drastically

unless policies scale up confrontation. Overall the US remains better positioned than

other large economies heading into election risks from inflation fighting room and

structurally adaptive capacity.

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THE GREAT INFLATION SHOWDOWN: PERSISTENCE vs CENTRAL BANKS

The defining economic theme confronting major economies like the US, EU and UK

in 2024-25 remains stubborn inflation persisting significantly above central bank

targets since 2021 despite repeated interest rates hikes so far (The Economist,

2023). While the IMF projects developed country inflation dropping from 8.2% in

2022 toward 4.7% by 2024, risks remain to the upside if wage rises or currency

weakness sustains core pressures. This expectation relief rests on shaky

assumptions however around commodities like food, oil and fertilisers; easing the

supply bottlenecks; moderating housing costs; and demand tempering as

households and businesses curb expenditure in the face of higher borrowing costs

which is yet unproven (BlackRock Investment Institute, 2024).

Upside inflation surprises force central banks into even more aggressive tightening;

but prematurely declared victories also pose stability risks if price rises subsequently

reignite due to lax policy. This uncertainty around exactly when and how global

inflation gets tamed creates dilemmas for policymakers in balancing growth support

against inflation vigilance (Furman & Summers, 2022).

Emerging markets additionally face volatility from currency depreciations transmitting

higher import prices domestically; while food and fuel constitute larger household

budgets shares so agriculture and oil cycles shape inflation drastically (Gurria &

Volcker, 2022). Also vulnerable are countries with substantial foreign currency

borrowing risks facing servicing strains as rates rise - which possess limited

monetary flexibility like Turkey, Egypt or Sri Lanka (World Bank, 2023).

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Therefore both advanced and developing countries need well communicated

monetary strategies anchored around inflation expectations management rather than

surprise shock and awe tactics. An unprecedented synchronisation of policy making

bodies on this inflation showdown offers scope for better understanding joint impact

of global rate hikes cycles on growth and prices (OECD, 2022).

GLOBALISATION FRAYS: RECONCILING OPENNESS AND SECURITY

Since the 2008 global financial crisis and especially accelerating through the

pandemic, economic openness has declined across measures like trade flows,

multinational investment, people movement and supply chain internationalisation

(UN DESA, 2022). The Ukraine crisis and US-China strategic rivalry have magnified

voices advocating localisation across sensitive technologies like semi-conductors,

batteries, AI and biomedicine. However turning back the clock on connectivity risks

self-harming living standards, productivity and prosperity.

What is essential are more nuanced discussions distinguishing tactical retreats on

narrowly defined strategic sectors like defence equipment; against throwing the baby

out with the bathwater via broadsides against trade, investment, talent circulation

and scientific collaboration. A balanced approach also considers geopolitical

sensitivities and economic security alongside efficiency gains and consumer welfare

(Gopinath, 2022). Global framework agreements around technology infrastructure,

standards setting bodies, data access norms, export control alignment and IP

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protection offer promising middle paths to right-size openness priorities (United

Nations, 2021).

Fundamentally the multilateral trade system embodied through the WTO needs

revived relevance to adjudicate disputes; evolve rules around e-commerce, services

and green transition; while adding China, India and other emerging economies to

decision tables matching economic heft. Otherwise factionalization trends will

undermine specialisation benefits enabling nations to concentrate on competitive

advantages (Bown & Keynes 2020). Ultimately collective gains via appropriately

governed interdependence outweigh episodic contentiousness. But this requires

better communicating win-win outcomes and cushioning transition losers. Leadership

must elevate narratives elucidating shared interests over shouting matches between

nationalist perspectives.

MOUNTING DEBT DANGERS: ASSESSING TRUE RISK APPETITE

The global debt pile amassed by governments, corporations and households has

reached $305 trillion in 2022 - a 50% rise since the 2008 financial crisis (IIF, 2022).

While ultra-low interest rates have checked debt servicing strains so far; rising

funding costs in 2023-24 raise financial stability alarms around excessive leverage.

Emerging market government debt worth $9 trillion faces rolls over risk, with over

60% now borrowing from foreign creditors compared to 40% in 2008 (World Bank,

2022).

With major central banks shrinking balance sheets, quantitative tightening will further

stress refinancing, heightening chances for crises in Africa, Middle East and Latin

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America. Structural vulnerabilities confront China too, in over-leveraged property

developers amidst slowing growth. Closer home bond market tremors demonstrate

risk transmission with pension funds rescue necessitating emergency central bank

support (Bank of England, 2022).

Overall while healthy skepticism guards against excess optimism, panic tail risks

appear contained given banks increased capital cushions and risk pricing

adjustments underway. Once lagging interest rates catchup with inflation trajectories,

debt trajectories can be restored toward sustainable ranges (IIF, 2023). This

underscores the need for communicating policy clearly and allowing time for

transitions to restore equilibrium across financial sector participants. Debt crises

demonstrate more art than science in resolving and rarely possess outright benign

options. Therefore agile yet predictable measures relaxed on austerity obsessions

generates better pathways then austerity edicts detached from ground realities.

INEQUALITY CHASM: PURSUING INCLUSIVE GROWTH

The COVID-19 crisis amplified inequality globally given lower-income groups limited

social protections and financial cushions alongside work shifts that eliminated roles

overnight without re-skilling lifelines. 84% of International Labour Organization (ILO)

member states thus cited rising inequality as a policy priority concern (ILO, 2021).

However even prior the pandemic, eight years of globalisation fuelled growth had

disproportionately benefited the richest 1 percent who control over 46 percent of

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household wealth in 2021 (World Inequality Lab, 2023). Developing nations face

widening divergence in living standards from advanced countries with average

earnings 30x higher despite substantial catchup recently from countries like China

and India (IMF, 2022).

Therefore both between country and within country inequality requires dedicated

policy redress to reverse pockets of marginalisation. Fiscal spending efficiency,

representation inclusion in decision making, equal opportunities via healthcare and

education access constitute key planks (Lakner et al., 2022). Harnessing science

and technology for affordable innovations around nutrition, sanitation alongside

closing digital divides can uplift those denied fruits of progress (United Nations,

2021). Trade adjustment assistance, relocation support and skills retraining offer

lifelines for disrupted livelihoods due to green transitions or automation.

Ultimately inequality indices improvement signals the ultimate report cards on

economic management prioritizing prosperity diffusion and vulnerability reduction.

Concrete roadmaps matching diagnostics to solutions foster social cohesion

alongside durable growth. The task spans public policy around jobs, transfers and

service delivery; private sector fair wage commitments and diversified

supply/distribution channels; civil society monitoring and mobilisation; academic

insights translation; and community led empowerment. With aligned efforts progress

appears reachable but further deterioration marks grave risks economic instability,

unrest and dashed human potential.

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NAVIGATING THE CURRENCY CROSS-CURRENTS

Foreign exchange markets witness continuous churn reflecting relative growth

prospects, interest rates divergence, capital flows variability, trade and fiscal

balances. But sudden disruptive movements risk destabilising investment horizons.

For emerging markets like Turkey or Egypt with substantial foreign loans, currency

slides makes debt service onerous while fuelling imported inflation (Chui et al, 2016).

China's Renminbi also confronts devaluation pressure as growth slows and the US

dollar strengthens owing to Fed tightening. However, G20 agreement around

avoiding currency wars and IMF oversight discourages blatant manipulation for

competitive gains these days (Gurria & Volcker, 2022).

For advanced countries, a weakening domestic currency stimulates export demand

given overseas price competitiveness. But this erodes consumers' purchasing power

especially around essential imports like energy or food. The dilemma forces uneasy

choices between export led growth against household welfare. Exchange rates also

influence discussion around reshaping global supply chains. Ultimately volatility

impacts ability of current and capital accounts to balance Smooth currency

adjustments reflecting true fundamentals enables companies and governments to

plan trade and investment decisions effectively. Building foreign exchange reserves

buffers alongside prudent macro-management offer promising stabilisers while

avoiding negative spillovers.

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THE SPECTRE OF TRADE WAR LOOMS

While multilateral institutions like the WTO discourage blanket protectionism, the US

and China continue targeted restrictions around items like steel, photovoltaic

equipment and electronic hardware since 2018 amidst strategic tensions (Bown,

2021). However further escalation into a full blown trade war accompanied by across

the board punitive tariffs would prove economically disastrous. Supply chain snarls,

higher input costs eroding export competitiveness, job losses and confidence decline

present key risks realised already during 2018 skirmishes. Such lose-lose outcomes

warrant urgent diplomacy given the symbiotic $750 billion trade relationship

(USCBC, 2022). With inflation already elevated, import taxes will worsen price rise

pressures.

Trade policy increasingly intertwines national security goals these days apart from

market access improvement. But balanced perspectives recognize distinguishing

across dual use technologies against areas where decoupling damages common

prosperity - like climate collaboration (Garcia Herrero & Xu, 2022). Export curbs also

risk counterproductive impacts when they choke domestic industries themselves.

Semiconductor value chains display such precarious interdependence currently.

Overall costs of confrontation overshadow what gains domestic substitution

promises in an interconnected world. Progress lies in negotiating inclusive

technology alliances eschewing monopolistic manipulation. Leadership should

elevate stabilising narratives before nationalism infects bilateral relations beyond the

tipping point.

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CONCLUSION

In conclusion, the global economic outlook for 2024-2025 stands at an intriguing yet

risky crossroads as the world economy transitions across multiple domains

simultaneously while battling familiar foes like inflation and inequality as well along

untested frontiers around technology access, climate policy and regional tensions.

Key known issues like election cycles and commodity volatility present policy trade-

offs between growth, inflation and resilience. However possibility of financial crises

or fragmentation risks pose negative risks scenarios impeding recovery and

prosperity diffusion. Ultimately realising moderate yet inclusive growth relies on

balancing domestic priorities with international obligations across trade, tax, climate

and technology matters guided by cooperation principles rather than unilateralism.

Using lenses like current and capital account spillovers, inflation expectations

anchoring, and inequality indices can fruitfully inform multi-dimensional policy

choices. Global leadership prioritizing collective interests and persuasive narratives

remains paramount to avoid prisoners dilemma type outcomes and race to the

bottom risks across issues like taxes, currencies or carbon tariffs. With prudent

governance, smart risk management and technological ingenuity - the world

possesses promising pathways to navigate uncertainty and instability ahead while

continuing progress towards stability and sustainability.

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