The World Bank, in its Global Economic Prospects report released in June 2024, pointed out that while global economic growth is stabilising, its pace has been weak. Economic growth in 2024-25 is expected to underperform the global average of the 2010s. Even with its strong rebound in 2021 in its post-COVID-19 phase, multiple reasons continue to affect and contribute to the slowing down of the global economy.

With geopolitical tensions, the slowing down of China’s economy, and rising inflation, here is your deep dive into how each of these factors is contributing to the global economic slowdown.

• Even after a strong global rebound in 2021, post-COVID-19, the economy is expected to underperform the average growth of the 2010s.
• The main reasons for this slowdown include geopolitical conflicts, the slowing down of the Chinese economy, and the growing global financial stress.
• Rising geopolitical conflicts have led to an increase in fuel and natural gas prices, affecting countries like the US and Germany in particular.

Here are the three main reasons that have played the biggest role in the slowing down of the global economy.

1. Growing geo-political conflicts

One of the main risks harming the global economy is rising geopolitical tensions. Two crucial regions, Eastern Europe and the Middle East, are facing the constant threat of wars. These regions are vital contributors to the world’s food and energy supply. If there is further escalation in the Middle East, the global energy markets could be drastically affected. This is because the region contributes nearly 30% to global oil production.
 

With growing geopolitical tensions comes heightened uncertainty, which negatively impacts investments and economic growth. These conflicts also affect the global supply capacity, leading to possible inflation-like effects. Even though oil prices are expected to fall this year, escalation in the Middle East could lead to an increase of 30% on a single barrel in 2024.

2. China’s economic slowdown

This year, China has seen its slowest economic growth since 1990 at 4.5%, not considering the COVID-19 era. All advanced and developing countries whose growth depends on trade with China could potentially be affected by this slowdown. After the COVID-19 era, by the end of 2021, China was the sought-after goods exporter to developing nations—close to 20%. This was a five-time increase for the country compared to the start of this century.
 

Apart from this, China has become more important since it supplies commodities central to the green-energy transition for many countries. This slowdown has thus affected these supplies, too. With stresses on particular sectors, specifically the property sector, China continues to face downside risks.

3. Growing financial stress

Trade restrictions have grown in the past year, and various measures have been implemented to address national security concerns. These measures, however, could potentially push the rebound that global trade desperately needs further back. 2023 saw global trade growth grinding to a standstill at 0.2%, the weakest in the last 50 years!

The United States and Europe seem to be worst affected in terms of gasoline scarcity caused by the continuing political crisis. In addition, manufacturing costs have also increased due to the prices of fuel and natural gas increasing.
 

This has also furthered the possibility of a recession in Europe, particularly Germany, as the country is extremely dependent on Russia for gas. The same holds true for countries like Italy.

These three reasons, in particular, could further amplify other factors, adding more pressure on the global economy's growth. However, all isn’t as ominous as it might seem. The chances that the U.S. economy could outperform in 2024 are also high, as analysts see the country's possible economic growth of 1.6% in 2024 and 1.7% in 2025.
 

If you are looking for safe investment option, then you can consider investing Bajaj Finance Fixed Deposit. With a top-tier AAA rating from financial agencies like CRISIL and ICRA, they offer one of the highest returns, up to 8.60% p.a.