In the world of economics, predicting the future is often akin to peering into a crystal ball. For a large part of 2023, this crystal ball seemed unusually bright, with the global economy outperforming expectations.
The unexpected strength came from robust consumer demand and healthy labour markets, prompting economists to revise growth forecasts upward by a significant 1 percentage point, according to a report from the Financial Times.
2024 Coming with a Twist in the Tale
However, as the year unfolds, a shadow of caution is emerging. Economists are beginning to believe that 2024 might bring a slowdown.
An aggregate of forecasts by Consensus Economics, as reported by the Financial Times, indicates that the world’s economy is likely to expand by 2.1% in 2024, down from the expected 2.4% growth this year.
Why the Change of Heart? Several factors contribute to this shift in sentiment. First and foremost, the spectre of persistently high demand looms large. This prolonged demand is expected to keep inflation elevated for an extended period.
This will be forcing central banks in advanced economies to maintain higher borrowing costs well into the following year.
Despite earlier expectations of rate cuts, the robustness of the US economy has even raised the possibility of further interest rate hikes, with economists now predicting the first rate cut not until the spring of the next year.
The Inflation Conundrum: The caution about the global economy’s future revolves around the belief that high demand will sustain elevated inflation, prompting central banks to keep rates higher.
This sentiment is prevalent in many regions, including the US, where some economists foresee a recession, albeit delayed.
In the European context, economies have fared better than initially feared, except for Germany, and this is anticipated to keep interest rates at elevated levels for a longer duration in the European Central Bank and the Bank of England.
China’s Role in the Story: China, the world’s second-largest economy, also plays a pivotal role in economists’ pessimistic outlook for 2024. This slowdown is described as “structural” and adds to the narrative of a global growth deceleration.
Notable Comment
Nathan Sheets, chief economist at US bank Citi, encapsulates the situation well:
“Services demand continued largely unabated, the labour market has stayed strong, wages have continued to rise. Some of the weakness [anticipated for this year] is being pushed into 2024.” said Nathan Sheets. In many countries, including the US, ‘there will be a recession, it’s just going to come later.'”
What Lies Ahead
According to the Financial Times report, economists predict that US growth will decelerate to 0.6% in 2024, down from 1.9% in the current year.
The UK and the eurozone are expected to maintain their sluggish pace in both years, while China faces structural challenges and a decline in manufacturing and exports.
On a more positive note, emerging markets like Brazil, Mexico, and India are set to continue performing well, fuelled by robust domestic demand.
