Falling global trade and rising debt point to grim outlook for 2024
- The world must face the reality that China’s property sector is not the biggest economic threat and the chance of ‘soft landings’ elsewhere is just an illusion
- Legacies of past monetary and fiscal excesses and present economic systemic fragmentation will undermine major economies
Not collapsing, just crumbling. That would be a good way to describe the state of the global economy at present, and now that it has begun sliding, it probably won’t be long before it really hits the skids. Then, it’s downhill all the way.
Why would the world tip into recession or slump in 2024 and beyond when it has proved resilient so far to Covid-19, supply chain problems, wars in Ukraine and Gaza, strained superpower relations, inflation and other shocks? Because that is how crumbling develops – incrementally at first, then with sudden acceleration. It is all about lagged impacts, especially on global monetary conditions and now trade. Economic growth will be next.
Many commentators do not appear able to grasp the fact that a headache does not go away when someone stops hitting you on the head with a hammer. The bruising remains, and internal injury takes time to show up.
According to the latest Global Trade Update published by the United Nations Conference on Trade and Development, global trade is expected to fall to around US$30.7 trillion in 2023 – a contraction of about US$1.5 trillion, compared to 2022. “Geopolitical trends including declining interdependence between China and the United States are having a growing impact on global trade,” UNCTAD said, adding that the outlook for 2024 is “uncertain but overall pessimistic”.
We will hear more of this in 2024 as debt distress turns to corporate or even country destruction. As the World Bank noted in its latest International Debt Report published on December 13, amid the biggest surge in global interest rates in four decades, developing countries paid a record US$443.5 billion in debt service in 2022. That amount will have ballooned this year.
There is an even bigger potential threat in the form of a financial system monster which we have allowed to be created to help buy off economic recession and which is capable of devouring the global real economy.
The dimensions of this monster were sketched graphically by Hung Tran, non-resident fellow at the Atlantic Council. Speaking at the Foreign Correspondents Club of Japan, Tran argued that a gap has developed between the real economy and financial activity in the US and other advanced economies.
“It is not clear how this kind of financial activity helps companies raise funds for their normal activities,” Tran said.
Potential threats in the financial system have a way of crystallising into crises when things are not going well in the real economy, and we are at such a juncture now. Let’s hope that 2024 can avoid an “unhappy new year” outcome.
Anthony Rowley is a veteran journalist specialising in Asian economic and financial affairs