In 2023, major headwinds faced the global economy, from soaring inflation and aggressive central bank tightening to wars in Europe and the Middle East and a festering property crisis in China that stunted its economic growth. Despite all of these negative factors, the post-pandemic global recovery managed to flourish. However, there are several developments that could provide direction for the global economy this year.
Last year, the U.S. economy defied expectations for a recession as consumers kept spending, prompting many economists to ditch their downside scenarios and forecast a soft landing. Also, China’s economy came close to government expectations, despite its ongoing property crisis, as the booming electric vehicle industry and heavy doses of government stimulus kept its economy afloat. The International Monetary Fund (IMF) forecasts global growth of 2.9% in 2024, a touch below its 3.0% estimate for 2023.
The U.S. economy this year is expected to weaken slightly following a strong showing in 2023. How far the economy slows may be determined to the extent of any slowing of consumer spending, which accounts for almost two-thirds of economic growth in the U.S. If the Federal Reserve can navigate a soft landing and keep the labor market from collapsing, consumers may continue their spending ways. The Fed’s latest projections see the U.S. jobless rate climbing to 4.1% by the end of the year from 3.7% currently.
China’s economy, the world’s second-largest, is in the midst of a multiyear slowdown. China’s property crisis has yet to bottom despite several government attempts to revive it. Chinese officials have pledged to prevent a cascade of debt defaults by developers, a disaster that would engulf the banking sector. Developers are saddled with huge debts and cannot obtain the funds to complete projects already started. Nomura Securities estimates that some 20 million units were presold for which construction has been delayed or hasn’t started. It remains to be seen if China can implement policies this year to boost liquidity and market confidence and help the property sector recover.
High-interest rates and the war in Ukraine held back the European economy in 2023. A sustained recovery in Europe this year will depend on the continued easing of inflationary pressures that could allow the ECB to begin cutting interest rates. In Japan, expectations for an end to the BOJ’s negative interest rates could rattle global markets if Japanese bond yields surge and begin to offer better returns than other global assets. That could cause investors in Japan, the world’s top creditor nation, to repatriate trillions of yen back home, causing immense disruption to global financial markets. Finally, with two wars raging and some 40 national elections on tap, political developments could shape the direction of the global economy this year.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
