Our current economic trajectory is unsustainable – continued weak growth and industry fragility is setting the stage for collapse.

The world economy is facing severe headwinds amid weak growth prospects, elevated inflation and heightened uncertainties. A confluence of factors – legacy effects of the COVID-19 pandemic, the lingering war in Ukraine, the ever-worsening impact of climate change and rapidly shifting macroeconomic conditions – are clouding the economic outlook, even as the global picture shows slight signs of improvement. Persistently high inflation has prompted the most aggressive interest rate hikes in decades, causing financial conditions to tighten sharply and exacerbating debt vulnerabilities. While economic prospects remain subdued, the slowdown in global growth in 2023 is likely to be less severe than previously expected, mainly due to resilient household spending in developed economies and recovery in China. Global growth is now projected to slow from 3.1 per cent in 2022 to 2.3 per cent in 2023, an upward revision by 0.4 percentage points from the January forecast. Global inflation is projected to decline from 7.5 per cent in 2022 to 5.2 per cent in 2023, mainly due to lower food and energy prices and softening global demand. Amid easing inflationary pressures, the global economy is expected to pick up some momentum in 2024, but at 2.5 per cent, growth is projected to remain well below the longer-term (2000-2019) average of 3.1 per cent. Against a backdrop of multiple interconnected crises and heightened macroeconomic uncertainties, monetary and fiscal policy challenges have further intensified. The recent banking sector turmoil in the United States and Europe has illustrated fragilities in the financial system, complicating the trade-off for central banks between fighting inflation and preserving financial stability. After a decade of loose monetary policy with low interest rates and quantitative easing in developed countries, which encouraged excessive leverage in the financial sector and generated negative global spillovers, the prospect of high interest rates and quantitative tightening now poses a massive challenge for developing countries. Lack of access to affordable finance limits the ability of many governments to invest in education, health, sustainable infrastructure and the energy transition, while threatening to push a growing number of countries into debt default.