As we look toward 2024, the global economic landscape is shaping up to be a picture of resilience and optimism but as always with it challenges and risks.
While most economist forecast a continuation of growth, most also anticipate a slowdown, mirroring the complexities of a world still grappling with the aftermath of a pandemic, higher than expected inflation and facing new geopolitical realities. But the fears of recession in the USA and Europe which was forecast at the beginning of 2023 have diminished and we enter 2024 with a more optimistic outlook.
Global Economy: A Picture of Growth and Challenges
The global economy's heartbeat in 2024 may be uneven—Goldman Sachs Research indicates that it will outperform expectations just as it did in 2023. However, this contrasts with the World Economic Forum's survey, where 60% of respondents foresee weakening due to geopolitical volatility. However there have always been geopolitical volatility and recent news points to improving relationships between China and USA, the main catalyst for uncertainty in geopolitical uncertainty, A recent Reuters’ poll of economists indicate a global growth forecast of 2.9% for 2023, with a slight deceleration to 2.6% in 2024, but as already mentioned the consensus is that a global recession will be avoided.
This optimism is couched in caution as economists watch for signs of consumer spending retrenchment, due to higher interest rates which has yet to appear as major economies operate at full employment levels. While unemployment remains low it is difficult to imagine how a global recession will occur and that consumer spending will decrease significantly.
USA: Robust Today, Uncertain Tomorrow
The United States has navigated the troubled waters of economic uncertainty remarkably well, with 2023 defying the recession fears and signalling a soft landing. The surprise has been robust GDP growth in2023, contributing to the labour market's ongoing strength and the gradual fall of inflation although still high in comparison to the last decade.
Like at the beginning of 2023 we enter 2024 with lower expectations than what may unfold. The Conference Board anticipates a real GDP growth deceleration to 0.8% growth, a notable drop from the 2.4% that is expected for 2023. Consumer spending that has been a buoyant force may see a downturn as pandemic-era savings dwindle. However, as employment remains strong, I do not expect to see consumer spending fall significantly while employment market remains strong. However, in 2024 student loan payments will be reinstated and historically high-interest costs on other loan balances. The OECD also projects a further slowdown to 1.0% growth, suggesting a year of economic moderation driven by tighter monetary conditions and reduced consumer savings.
Europe: Growth Amidst Gradual Recovery
Europe is complex as always. The EU's economy is forecasted to grow by 1.7% in 2024, marking a significant slowdown from the brisk post-pandemic recovery years and Europe also avoided the predicted 2023 recession. Despite tight financing conditions and weak foreign demand, the EU executive arm remains is also expecting an expansion of 1.7%.
The UK may see real disposable income rise by 2.5% as inflation falls and wage growth stays elevated. Across the continent, a gentle wind of relief comes in the form of inflation, which may continue its downward trend. Although the employment market is not as strong as other developed nations, they are still stronger than they have been in the past decade which assists in supporting the European economy as income tax on employees is the main source of revenue for European and many other governments, allowing governments to manage their budgets, reduce borrowings or increase spending on aging infrastructure.
Japan: The Delicate Balance of Growth and Inflation
Japan's economy, after a prolonged struggle, finally surpassed its pre-pandemic peak by the second quarter of 2023. A 1.2% rise in GDP from the first quarter was largely fuelled by export growth, aided by a weakening yen. For 2024, the projected growth is more modest, at 1.1%, with domestic demand being the main growth driver, bolstered by government support for households and increased defence spending. But the weaker yen will continue to make Japan more competitive on the global stage.
However, there are risks —concerns around inflation persist, with the Bank of Japan poised to raise inflation forecasts, signalling a continued cautious approach to monetary policy which is difficult to manage while the yen remains weak.
China: High Growth Amidst Softening
China, an engine of global economic growth, is set to continue its upward trajectory, albeit at a softened pace. The IMF projects a 5.2% growth for 2023, slowing to 4.5% in 2024. The lifting of zero-COVID restrictions has released pent-up demand, especially in the services sectors like tourism and entertainment, contributing to a rebound to 5.4% in 2023 and an expected 5.1% in 2024. However, risks remain, and the recent data has not been encouraging. Ongoing weakness in the property market and subdued external demand, continued geopolitical tensions, and the increase of management of supply chain security risk, driven by national policy, see the possibly of growth slowing to 4.6%.
Australia: Harnessing Resilience for Growth
Australia's economic forecast for 2024 reflects resilience as it leverages its natural resources, strong employment market and a reviving domestic demand. While commodity prices may ease from their highs, they are expected to support steady export growth. Domestic recovery should also be bolstered by increasing consumer confidence and government initiatives to bolster small businesses. The Reserve Bank of Australia faces the challenge of nurturing growth while managing inflation.
The housing market remains a segment watched by all. Prices in major cities continue to rise in recent years, even with increasing interest rates, leading to concerns about affordability and sustainability. The Reserve Bank of Australia is expected to continue its balancing act between fostering growth and containing inflation, while employment market is likely to remain strong, which is likely to influence the housing market in 2024 if interest rates continue to rise.
Indonesia: Stability in the Wake of Elections
Indonesia’s economic climate in 2024 could be influenced significantly by its general elections, which may boost government and nonprofit household consumption. The country’s growth estimation stands at an optimistic 5.3 to 5.7 percent, with the government is relying on policy initiatives aimed at enhancing the industrial sector's value and boosting export value while reducing the reliance on consumption to drive the Indonesian economy. The Asian Development Bank tempers this optimism slightly, projecting a growth of 5.0 percent as commodity booms wane and domestic demand normalizes, however economic growth in Indonesia is consistently around 5.5 percent and there is no indication currently that the commodity boom will wane, but it is always a risk.
Looking Ahead
As we sail into 2024, the journey as always promises to be complex, but the globally strong employment markets continue to uphold consumption as well as government revenue and increases the positive upside risk that growth will be higher than currently forecast.
While the global economic engine continues to grow, the pace as always varies across regions. The U.S. economy, resilient in the face of adversity, may face the prospect of slowed growth as consumer savings erode, China growth as well. Europe's recovery, although steady, could be mellow.