How should we view the evolving global economy as we pass the halfway mark of 2024? What are the key highlights and challenges in the world economy, and how will China’s economy develop? Recently, Economic Information Daily conducted a written interview with Lin Jianhai, Executive Vice President of the International Finance Forum and former Secretary of the International Monetary Fund (IMF), to get his insights on these pressing questions.

Four Key Characteristics of the Global Economy

“2024 will be a year of ‘mediocrity’ and high uncertainty for the global economy,” Lin Jianhai stated.

According to Lin, the global economy this year exhibits four key characteristics.

First, economic growth is slow and uneven. The International Monetary Fund (IMF) projects that the global economy will grow at an annual rate of about 3% over the next few years, below the average annual growth rate of 3.8% over the past two decades. The global economic growth rate this year and next is expected to be roughly on par with last year, which can be described as “mediocre.” The unevenness is also significant: while developed economies are stabilizing, their growth continues to lag behind that of emerging markets and developing countries. However, the latter’s pace of catching up with developed economies is slowing. Additionally, there are significant disparities in performance among emerging markets and developing countries.

Second, while the outlook for global trade has improved, long-term trends remain concerning. For decades, global trade has typically grown faster than the global economy. However, in recent years, factors such as economic slowdowns, rising trade protectionism, and economic fragmentation have led to sluggish trade growth. IMF analysis indicates that global trade in goods and services grew by only 0.8% in 2023, far below the global economic growth rate. In 2024 and 2025, global trade growth is expected to rebound to around 3%, which aligns with global economic growth, but trade restrictions and geopolitical conflicts will still constrain it.

Third, from a monetary policy perspective, interest rates in developed economies are beginning to decline but will remain higher than pre-pandemic levels. Central banks in Canada, Europe, and the UK have already started cutting interest rates, and the US Federal Reserve is expected to begin lowering rates in September. However, in the medium to long term, US short-term interest rates are likely to remain between 3.0% and 3.5%, with medium to long-term rates around 4%, making a return to low levels unlikely. On July 31, the Bank of Japan announced an interest rate hike. These changes in interest rates among major developed economies will introduce uncertainties in capital flows and exchange rate fluctuations for emerging market countries.

Fourth, despite stabilizing, the US continues to face significant challenges as the world’s largest economy. Inflation may not fall to the Federal Reserve’s 2% target, forcing rates to remain high. The Fed's slow pace of rate cuts could hinder economic growth, with recent stock market volatility reflecting these concerns. The growing government debt, which continues to climb, elevates long-term interest rates. Trade protectionism persists, weakening the US's economic competitiveness, and income inequality is worsening, leading to a decline in social cohesion.

Significant Challenges and Development Opportunities

As the global economy recovers from the shocks of the COVID-19 pandemic and geopolitical risks, while a global recession has been avoided, the short-term recovery masks the long-term challenges ahead.

Lin Jianhai warned of several significant challenges facing the global economy:

• High levels of national debt cast a shadow over future economic development. By the end of 2023, global debt will amount to 330% of global GDP, surging by $100 trillion over the past decade. In the past two years, the appreciation of the US dollar and rising US interest rates have exacerbated debt pressures and risks for some emerging markets and developing countries.
• The risk of economic and trade decoupling is increasing. According to an IMF report, if widespread economic and trade decoupling occurs, the damage to the global economy could amount to 7% of global GDP, equivalent to the combined economic output of France and Germany.
• The year 2024 will see elections in 76 countries and regions, covering 41% of the world’s population and 42% of global GDP. The potential turbulence from these elections adds more uncertainty to the global economy.
• In the short term, geopolitical tensions and global security concerns will likely persist, creating significant uncertainty in global energy and food prices.

From a long-term perspective, Lin Jianhai believes that low labor productivity, demographic changes, increasing income inequality, and climate change also pose challenges to future economic development.

However, global economic development also presents new opportunities. Technological advancements are progressing at an unprecedented speed, with the “new manufacturing” industry and cutting-edge technologies injecting new vitality into future industries. A range of disruptive products and technologies will reshape production, work, and lifestyles, bringing breakthroughs and development to the global economy. Utilizing digital technology and advancing industrial internet maturity will significantly boost labor productivity, promoting sustained and rapid economic growth. The rapid development of artificial intelligence also opens up vast potential for economic growth.

China’s Economy Remains Resilient and Dynamic

This year, international organizations have successively raised their forecasts for China’s economic growth. The IMF recently revised its 2024 growth forecast for China to 5%, indicating strong resilience in China’s economy.

Lin Jianhai believes China’s medium- to long-term economic prospects are promising. He notes that a stable political and social environment guarantees China’s positive long-term economic outlook. Regarding human capital, China has a well-educated and professionally trained workforce. Over the next several years, China will continue to benefit from a talent dividend, with room for growth in labor supply. There is still ample space for China’s industrial upgrading and technological advancement. Compared internationally, China’s service industry and urbanization still have significant room for development.

Lin Jianhai suggests timely and robust policy support will help boost confidence and accelerate the adjustment process. To address the deteriorating external environment, deeper and more advanced levels of openness are required. In the medium to long term, improving labor productivity is an urgent task for China’s economy and is essential for sustained economic growth. IMF research shows that if solid structural reforms are implemented to improve labor productivity, China’s growth potential can be further enhanced.