Staggering forward, the economic "scarring effect" is still there

In the past year, under the influence of multiple factors, the world economy has staggered forward. In developed economies such as the United States and Europe, high interest rates, high inflation and high risks, the negative impact of the Fed's tightening monetary policy has spilled over, and the "scarring effect" of the epidemic in some countries is still there. In the meantime, the conflict between Russia and Ukraine has not ended, the Palestinian-Israeli conflict has resumed, and the risk of geopolitical conflict has increased the instability of the world economic development.

In the coming year, the world economy is expected to remain challenging, and growth is expected to slow somewhat. At the same time, however, the world is also facing some opportunities, with the outside world expecting that developed economies such as the United States and Europe may cut interest rates, that Palestinian-Israeli and other geopolitical conflicts may seek peaceful solutions, and that developing countries and emerging economies have promising development potential...... In the face of an uncertain international environment, China will continue to contribute to the development of the world economy.

Multiple factors affect the development of the world economy

Looking back at 2023, the world economy has encountered multiple challenges and moved forward bumpy.

"Divergence" is one of the key words of the world economy in 2023. Liu Ying, a researcher at the Chongyang Institute for Financial Studies at Renmin University of Chinese and director of the Cooperative Research Department, told the Beijing News that in 2023, the overall macro policy differentiation of the world economy will be typical, and the monetary policy differentiation is particularly typical. The United States and Europe have been tightening monetary policy and raising interest rates several times, and the Federal Reserve has raised the federal funds rate to a high of 5.5%. Europe maintains the three key interest rates above 4%. On the other hand, the Bank of Japan continues to maintain an ultra-loose monetary policy, and China has always maintained a sound monetary policy.

According to Xinhua News Agency, the Federal Reserve announced on December 13 that it would maintain the target range for the federal funds rate between 5.25% and 5.5%. The next day, the European Central Bank announced that the main refinancing rate, marginal lending rate and deposit facility rate will remain unchanged at 4.50%, 4.75% and 4.00%, respectively. At its monetary policy meeting on 19 December, the Bank of Japan announced that it would continue to maintain its ultra-loose monetary policy.

At the same time, the multiple crises facing the world economy have not been completely resolved.

High inflation and a sharp tightening of monetary policy in the United States have cast a shadow over the development of the world economy. Liu Ying said that advanced economies, especially those in the United States and Europe, have high inflation, high interest rates, high debt and high risks. In this case, the monetary policy tightened by the developed economies of the United States and Europe, and its negative impact spilled over to many countries, such as the bankruptcy of Sri Lanka and the "triple killing" of stocks and bonds in Turkey.

Daniel Leigh, head of the world economy at the International Monetary Fund (IMF) Research Department, pointed out that the Fed's aggressive interest rate hikes have triggered a sharp appreciation of the dollar, which has led to a sharp increase in the debt repayment pressure of countries borrowing in US dollars, especially the burden on less developed countries. According to the IMF, more than a quarter of emerging economies have either defaulted on their debts or their bond prices have plummeted, and more than 60 percent of low-income countries are in debt distress.

Geopolitical conflicts have also had a negative impact on the world economy. "The negative impact of geopolitical conflicts is mainly reflected in the volatility of energy and food prices, and the impact on global industrial and supply chains. For example, Liu Ying said, "The Ukraine crisis is not over, and the Palestinian-Israeli conflict has erupted on the largest scale in decades." The Palestinian-Israeli conflict has not yet been resolved, the Red Sea crisis has emerged, and a number of international shipping giants have made detours, and freight costs have risen. ”

Not only geopolitical conflicts, but also unilateralism and protectionism are also important factors affecting the development of the world economy. Liu Ying said that the United States initiated unilateralism and trade protectionism, which severely restricted cross-border trade and investment in the world economy. The United States is trying to "decouple" and "break the chain", and accelerate the near-shoring and friend-shore of industrial and supply chains.

Challenges and opportunities coexist

Looking ahead to 2024, there are still many risks and challenges in the world economy. It is believed that the world economy is expected to slow down, but there are also some opportunities.

In its latest World Economic Outlook, the IMF writes that "the global economy is faltering and lacking momentum." The global economy is expected to grow by 3.0% in 2023 and 2.9% in 2024. The World Bank's latest Global Economic Prospects are titled "Slowing Growth, Financial Risks."

By contrast, the Organisation for Economic Co-operation and Development (OECD) forecasts are more pessimistic: global growth will slow to 2.7% next year, after 2.9 percent this year. The OECD pointed out that the likely slowdown in the pace of growth in the United States next year is a key factor in the slowdown in global economic growth, and the growth rate of the US economy is expected to slow from 2.4% in 2023 to 1.5% in 2024.

Liu Ying is cautiously optimistic about the trend of the world economy next year. In her view, advanced economies will still face high inflation, high interest rates and high risks next year, "In terms of high interest rates, although the United States and Europe will enter a cycle of interest rate cuts next year, the level of interest rates will remain high." For example, if the Fed cuts by 75 basis points, interest rates remain relatively high. ”

At the same time, Liu Ying believes that the global inflation level may decline next year, but the inflation level in the United States and Europe, especially the core CPI, is unlikely to fall to 2%. According to the IMF, global inflation will fall from 8.7% in 2022 to 7.0% this year and 4.9% in 2024, although the pace of decline is slower than initially expected.

But in the new year, the world economy also faces some opportunities. In Liu Ying's view, the developing countries and emerging economies represented by China have great development potential and a promising future. Under the Belt and Road Initiative, the connectivity between emerging markets and developing countries has been strengthened. In addition, the increase in flights between China and the United States and the substantial increase in the operation of China-Europe freight trains are conducive to promoting intra-regional and inter-industrial trade and promoting the development of the world economy.

The "scarring effect" brought about by the epidemic is still there, and the weakening of the "scarring effect" will become an opportunity for some countries in the future. Liu Ying said: "This year is a year in which some countries are more affected by the 'scarring effect', and it is expected that the economy will accelerate into the track of recovery in the future." ”

The so-called "scarring effect" refers to the trauma experienced in the past, even after the wound has healed, it will still have an impact on the person's psychology and external perception. Economists believe that the epidemic will objectively have a certain impact on the economy, human psychology and other aspects, forming a "scarring effect".

In his keynote speech at the launch of the World Economic Outlook report in Beijing in October, IMF Chief Representative to China Steven Barnett pointed out that the world economy will be resilient in 2023, but there will be a general "scarring effect" of the post-pandemic economy. The IMF forecasts that global GDP will rise to 118.6% in 2023, but due to tighter monetary policy, high inflation, rising living costs and the impact of the pandemic, the actual figure is only 113.4%, and this difference reflects the "scarring effect".

The opportunities for the world economy don't stop there. Liu Ying said that the United States and Europe are likely to shift from raising interest rates to cutting interest rates, and the negative spillover effect is expected to weaken. If the parties involved in geopolitical conflicts, such as the Israeli-Palestinian conflict, can find a peaceful solution, it will also have a positive impact on the global economy.

China is the biggest engine of global economic growth

Although there are slight differences in the judgment of all parties on the trend of the world economy next year, there is one thing that is basically the same: China is an important part of the development of the world economy.

According to CCTV News, China has contributed more than 30% to world economic growth for many years and is an important engine for the stable growth of the world economy. International cooperation platforms such as the CIIE, the CIFTIS, and the Chain Expo share China's opportunities with the world.

Recently, a number of international institutions have raised their forecasts for China's economic growth this year. On 29 November, the OECD raised its forecast for China's economic growth in 2023 to 5.2%, higher than its forecast in September. On November 7, the IMF raised its forecast for China's economic growth in 2023 from 5% to 5.4%. Barnett said in a recent interview that China will contribute about one-third of the momentum to global economic growth in 2023, and predicted that China's economy will maintain good growth in 2024.

In response, Foreign Ministry spokesman Wang Wenbin responded at a regular press conference on December 21 that recently, a number of international institutions, including the International Monetary Fund and the Organization for Economic Cooperation and Development, have raised their forecasts for China's economic growth this year and are optimistic about China's economic growth momentum next year. It is widely believed that China is the biggest engine of global economic growth. China will continue to expand high-level opening-up and share the dividends of China's development with the rest of the world.

"China will be able to achieve an economic growth rate of 5% in 2023 and a growth rate of more than 30% to the world economy next year. Liu Ying said, "the government's macro policy measures to promote the economic recovery, the implementation of monetary policy and fiscal policy space is sufficient, the recent proposed 'new quality productivity', with scientific and technological innovation as the driving force, especially typical, the development of artificial intelligence has changed all aspects of people's lives, the development of advanced manufacturing will inject new momentum into the world economic growth." ”

An interview with Shi Liwei, Executive Director of the World Economic Forum, published on February 6, 2023, reports.

• Reporter's Notes

Whether it's German households struggling with high energy bills, Australian renters worrying about rising rents, or the American public lamenting that egg prices are higher than in previous years...... Looking back at 2023, people in many parts of the world can generally feel the impact of global economic fluctuations.

This year, the world economic situation was full of twists and turns and uncertainties. The Federal Reserve has raised interest rates several times, some countries' economies are slowly recovering, and a new round of Palestinian-Israeli conflict has disrupted global supply chains and stirred up global food and energy prices...... The impact of this international event will ultimately fall on everyone. Understanding the development of the world economy and guiding decision-making in daily life has become the choice of more and more people.

Earlier this year, two-thirds of chief economists surveyed were concerned about a global recession in 2023, according to a survey by the World Economic Forum. Rather than listing a series of cold figures, listening to the sharing of important guests at the forum is a more vivid way for readers at home and abroad to understand the world economic situation.

As a result, after many times of communication with the World Economic Forum's media liaison, I finally completed a video connection with Shi Liwei, Executive Director of the World Economic Forum. Shi Liwei said that in 2023, the world will face multiple crises, with food crises and energy crises superimposed, and prices will remain high. Many central banks are cautious about whether the world economy will suffer a recession and high inflation, but there is no doubt that a peaceful resolution of the Russia-Ukraine conflict will benefit economic growth.

At the end of the year, the Russia-Ukraine conflict has not yet been resolved, the multiple crises facing the world are still facing, and many international institutions, including the International Monetary Fund, have lowered their global economic growth forecasts, what does it mean? With such questions, I contacted and interviewed Liu Ying, a researcher at the Chongyang Institute for Financial Studies and director of the cooperative research department of the Chinese University, to interpret this from her professional perspective.

In Liu Ying's view, many international institutions have lowered their global economic growth forecasts in 2024 due to factors such as high inflation, high interest rates and high risks in the United States and European economies, but it should also be noted that the world economy will face multiple opportunities next year, such as the weakening of the "scarring effect" in the future, which will become an opportunity for some countries. "This year is a year in which some countries are more affected by the 'scarring effect', and it is expected that the economy will accelerate into the recovery track in the future. Liu Ying said.

Beijing News reporter Zhu Yuehong

Edited by Zhang Lei Proofread by Zhao Lin and Zhang Yanjun