RAPID development in science and technology during the last twenty years has brought about wonderful — sometimes unbelievable and amazing — advancements in our lives, which, before the advent of the new century, were only dreams. Electronic media, in particular, has brought the whole world virtually into our palms. Smart-phones have literally transformed the entire world into a global village. As a result, a single country’s economy has integrated and become a part and parcel of the global economy. What happens in the Tokyo Stock Exchange — the land of the rising sun — in the morning, affects trading in London, Paris, Germany, and New York, thousands of miles away, within minutes. The value of global currencies fluctuates within minutes based on economic data from countries, instantly available to us. Thanks to computers, laptops, and, of course, smart-phones.
The global economy proved to be more resilient than anticipated in 2023. At 3%, global GDP growth surpassed consensus expectations by one percentage point. This outperformance was even more remarkable in that it occurred despite the fastest monetary policy tightening cycle in four decades, severe banking sector stress, wars in Ukraine and Israel and a brief but severe tightening of financial conditions in the fall.
The key drivers behind this solid global economic performance were stronger labour market growth supporting a rebound in inflation-adjusted income growth, a delayed re-balancing in the growth mix driven by services, a much less severe drag from tighter monetary policy thanks to healthy household and corporate balance sheets and fiscal policy support in some economies. What was even more amazing was the fact that this economic outperformance was accompanied by a notable decline in global inflation. As we anticipated last year, easing supply constraints, reduced labour shortages, cooling energy prices and moderating demand growth have led to a notable easing of inflation pressures. Gone are the days of fearing a wage-inflation spiral and a high-inflation regime.
But, while there would appear to be much to celebrate, most measures of consumer and business morale point to a generally depressed environment. This disconnect is due to several factors, including cost fatigue—where costs for goods, services, labour and capital are much higher than pre-pandemic levels—the prevailing recessionary narrative in 2023 and social media amplification of negative news. The global economic outlook for 2024 is one of transition. The key theme will be the search for equilibrium, with efforts to find a new normal. Economic turbulence and volatility are unlikely to fade, but stakeholders are likely to find better balance in a world where inflation, labour markets, fiscal and monetary policy, technology and financial markets still appear on edge.
While the challenge for economies worldwide in 2023 was to ensure a soft landing, the question policymakers, businesses, and individuals must ask in 2024 is whether the runway is long enough to sustain that soft landing. The 2024 global economic outlook calls for cautious optimism. The year may well be a turning point, a period of transition to a new state of balance. Here are top five themes for the year. In 2024, we anticipate moderate global GDP growth around 2.8% – in line with its 2019 performance but below the expected 3.0% advance in 2023. We expect the composition of this growth to be mixed, with modest growth of around 1.3% in advanced economies, and moderate momentum of about 3.8% across emerging markets.
The US economy is projected to grow moderately at 1.8% in 2024, with a deceleration in the first half and re-acceleration in the second half. Europe is expected to grow at 0.8%, with Eastern Europe benefiting from a catch-up effect while Western and Southern euro area economies see modest growth. Growth headwinds include weaker employment, elevated prices and wages, high interest rates, tighter credit conditions, and fiscal consolidation, except in China. However, resilient labour markets may support income growth and consumer spending. While prices remain high, easing inflation and central bank rate cuts could benefit households, corporations, and investors.
With the value and cost of labour having increased significantly post-pandemic and the cost of capital likely to remain elevated, we foresee an increased strategic emphasis by business executives in driving stronger productivity growth. The combination of easing supply constraints, moderating final demand, re-balancing labour markets and cooling rents should lead to further global disinflation in 2024. Advanced economies should see inflation approach central bank targets by mid- to late-year while inflation in large emerging markets in Latin America and Asia has largely converged back to pre-pandemic levels.
Easing inflation and slowing economic momentum will push central banks to pivot away from their tightening stance. Still, given lingering fears of inflation resurgence, we believe developed markets’ central banks are likely to wait until there is undeniable evidence of inflation sustainably moving toward their targets before cutting policy rates. This means rate cuts are unlikely until the summer. Importantly, once the policy recalibration cycle is complete toward the end of 2025, we foresee rates being higher than in the pre-pandemic decade.
In China, monetary policy is likely to remain accommodating to support growth. Fiscal sustainability is likely to feature prominently on policymakers’ agendas in 2024. We anticipate fiscal consolidation in most advanced economies resulting from a renewed focus on budget deficits in a high interest rate environment and the expiry of energy crisis support measures in Europe. Fiscal tightening is also anticipated in most emerging markets, although the adjustments may be less pronounced than in advanced economies. Global trade flows are likely to remain constrained in this subdued economic growth environment with services likely outpacing merchandise trade. The 2024 global economic outlook is centred on the search for equilibrium after outperforming in 2023. Five key trends include sub-trend growth but no recession, duelling headwinds and tailwinds, increased productivity with help from AI, and a cautious pivot by central banks.
—The writer is Former Civil Servant and Consultant (ILO) & International Organisation for Migration.
