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| There are many reasons to be optimistic about the world economic outlook in 2024. (Source: AFP) |
First, the global economy has shown remarkable resilience. Since 2020, the global economy has been hit by successive shocks from the pandemic, conflicts in Europe and disruptions to supply chains. All of these factors have caused record high inflation and the steepest interest rate hike cycle in decades. However, economies around the world have adapted better than expected, and this will continue into 2023.
According to Fitch Ratings’ global index, world GDP is 9% higher than pre-pandemic levels in the third quarter of 2023. Businesses have retooled their logistics systems, Europe has reduced its dependence on Russian gas supplies, and rising interest rates have not led to a spike in unemployment. This resilience provides a solid foundation for 2024.
Second, inflation is falling rapidly. Global inflation was 8.9% last year and is expected to fall to 5.1% by the end of 2024. Food price inflation—from wheat to cooking oil—has fallen sharply, while high energy prices are also easing. Supply chain shocks from the pandemic have also eased. Service-sector inflation remains high, but this is due to a stable job market and rapid wage growth.
Third, concerns about a “Table Mountain” monetary policy cycle have eased. Major central banks are now likely to cut interest rates as early as 2024, earlier than expected. This is good news for many households and businesses. And although three regional US banks and Credit Suisse will collapse in March 2023, the fallout from high interest rates has been averted.
Then there is the boom in financial markets. Wall Street’s leading indexes neared or exceeded record highs in December 2023. The bond market also finished the year strongly. And the chances of a “soft landing” for the US economy in 2024 have increased with the Federal Reserve successfully controlling inflation without triggering a recession. Not all economies are expected to do well. Growth has slowed in the UK and Germany.
China’s post-pandemic recovery has also been disappointing. But many other economies are showing promise. India, Mexico and Vietnam are benefiting from shifting trade patterns, and investors are looking to increase investment in these markets in the coming year. Prudent economic management is also taking hold in many countries. Greek government debt has returned to investment-grade levels after a decade of decline. Central banks in many developing countries have also taken the lead in controlling inflation.
Ultimately, 2023 is as good a year for tech as some had expected.
ChatGPT has become the fastest-growing app of all time, and the buzz around generative AI has helped boost the stock market. The adoption of generative AI by businesses by 2024 could help support productivity gains, which have shown signs of picking up in the US this year.
Approval of a weight-loss drug like Novo Nordisk’s Wegovy could help ease the burden of health care. And Toyota’s progress on solid-state batteries could be a game-changer for the electric vehicle industry. Still, the global economy faces challenges in 2024, from elections to rising debt.
However, after a resilient performance in 2023, there is still a chance that the world economy will perform better than expected.
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