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| Global growth may remain slower in 2024, but the worst is likely over. (Image source: Economy Middle East) |
The fact that the global economy has avoided a new recession, coupled with optimistic signs such as increased consumer spending, a recovery in manufacturing, a continued decline in unemployment, and cooling inflation, is boosting confidence in a bright global economic outlook for 2024.
The difficulties may be over…
The international context in 2023 presented numerous challenges, ranging from geopolitical conflicts and sharply declining demand amidst inflation and high interest rates to risks in energy and food security, as well as escalating financial and monetary issues.
Nevertheless, the past year has seen three positive developments. Firstly, the global economy (especially the US and EU) did not experience the recession predicted. Global economic growth in 2023 is projected at around 3%, up from 3.5% in 2022 (according to the IMF), with trade increasing by 0.8% and FDI decreasing by about 2%. Secondly, global inflation has fallen rapidly (from an average of 8.6% in 2022 to around 5.5% in 2023), leading economies to temporarily halt interest rate hikes and people to start spending more. Thirdly, the greening and digitalization trends continue to be promoted.
Following these positive results, the world expects that the reality of 2024 will likely be better than anticipated. In particular, the established fundamental economic trends can be considered reasons for optimism regarding 2024.
First, the international economy has demonstrated remarkable resilience. Since 2020, the global economy has weathered the Covid-19 pandemic, military conflicts in Europe, and supply chain disruptions—factors that combined to cause the highest inflation and most aggressive interest rate hike cycle in decades.
But economies have adjusted better than expected and continued to do so throughout 2023.
According to Fitch Ratings, global GDP was 9% higher in the third quarter of 2023 than pre-pandemic levels. Businesses restructured their logistics systems, Europe became less dependent on Russian gas, and higher taxes did not lead to a surge in unemployment.
Even the Chinese economy is growing, despite all the pessimistic forecasts made in the first quarter of 2023. The Russian economy, despite a series of Western sanctions, has not declined, slowly but surely adapting to conditions no longer having economic ties with the West, especially Europe.
All of this indicates that every sector and aspect of the global economy, every area of trade, demonstrates resilience and growth despite unprecedented challenges. This resilience is expected to create a solid foundation for 2024.
Furthermore, the "ghost" of the inflation crisis is fading away. Overall, inflation is trending downward in many parts of the world. According to the IMF's World Economic Outlook report, core inflation is on track to fall from 9.2% in 2022 to 5.9% this year and could continue to decline to around 4.8% in 2024. Core inflation, excluding food and energy prices, is projected to fall to 4.5%.
Goldman Sachs Research analysts expressed optimism about global economic growth in 2023, stating that the results have exceeded the expectations of most economists and that supply chain shocks caused by the pandemic have eased.
A prime example is the United States – the world's number one economy – which not only avoided a deep recession but also achieved stable growth. Consumer spending increased sharply, investment grew steadily, effectively supported by a robust job market and a record low unemployment rate (around 3.9%) for many years.
Notably, the cooling inflation trend in many countries around the world is prompting central banks to lower interest rates or at least refrain from raising them for most months of 2023. Lower borrowing costs are driving investment and home purchases.
Major central banks may now cut interest rates in 2024 sooner than expected. This would be a welcome relief for many households and businesses globally.
Happy New Year!
Analysts at Harvard Business Review , a publication of Harvard Business School, believe the economic outlook remains highly uncertain. Higher interest rates are impacting the entire system, military conflicts are devastating the world, and climate disasters are becoming increasingly common. Therefore, the outlook for global economic growth over the next five years has never been worse.
The Financial Times notes that these positive points are not a reason for complacency. The global economy still faces many challenges in 2024, from major political elections to rising public debt in many countries... But after a fairly good foundation in 2023, it is very likely that the reality in 2024 will be better than expected.
The global economy still faces challenges in the new year, causing hardship for people in many regions and stagnation in the economy. Among these, the most prominent are economic policies being dominated by conflicts between alliances and blocs.
The Russia-Ukraine conflict is pushing the global economy in different directions, with some sides maintaining support and cooperation with Moscow, and others with opposing forces. While China, India, and Türkiye are increasingly buying Russian oil, Europe is gradually reducing its purchases to the point of "breaking ties."
Furthermore, Houthi attacks in the Red Sea are contributing to the disruption of the global economy, driving up shipping costs, insurance prices, and oil prices, while forcing traffic to be diverted to longer and more expensive routes…
Currently, the global economy is divided along several different trends. Economies heavily reliant on manufacturing and trade are underperforming compared to the rest, such as Germany, which saw significant economic decline in three-quarters of 2023. Meanwhile, service-oriented economies are performing better, such as France and the United States.
However, in the near future, due to various factors, this trend could completely reverse. The unpredictability of the growth trajectory of these economies will make it difficult for investors to make decisions.
In light of these challenges, some experts have become more cautious in their predictions. Fitch Ratings estimates global economic growth in 2024 at only 2.1%, down from the 2.9% estimate for 2023. The National, however, is more optimistic, suggesting that while analysts point to slower global growth expected in 2024, the worst may be over and obstacles could lessen.
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