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| Global growth may still slow in 2024, but the worst may be over. Illustration photo. (Source: Economy Middle East) |
The global economy avoiding a new recession, along with optimistic signals such as increased consumer spending, recovery in production, continued decline in unemployment, and cooling inflation... have boosted confidence in a bright global economic outlook in 2024.
The hard times may be over…
The international context in 2023 will face many challenges, from geopolitical conflicts, sharp decline in demand amid inflation, high interest rates, energy security risks, food security risks, etc. to increased financial and monetary risks.
However, the past year has recorded three positive points. First, the world economy (especially the US and EU) did not decline as predicted. The global economy in 2023 grew by about 3% from 3.5% in 2022 (according to the IMF), of which trade increased by 0.8% and FDI investment decreased by about 2%. Second, global inflation decreased rapidly (from an average of 8.6% in 2022 to about 5.5% in 2023), so economies are temporarily pausing interest rate increases and people are starting to spend more. Third, the trend of greening and digitalization continues to be promoted.
Following these positive results, the world is expecting that 2024 will be better than expected. In particular, the underlying economic trends that have formed can be considered a reason to be optimistic about 2024.
First, the global economy has shown remarkable resilience. Since 2020, the global economy has weathered the Covid-19 pandemic, military conflict in Europe and supply chain disruptions, factors that have combined to produce the highest inflation and the most aggressive interest rate hike cycle in decades.
But economies have adjusted better than expected and continue to do so through 2023.
According to Fitch Ratings, global GDP will be 9% higher than before the pandemic in the third quarter of 2023. Businesses have restructured their logistics systems, Europe is becoming less dependent on Russian gas, and higher tariffs have not led to a spike in unemployment.
Even the Chinese economy is growing, despite all the pessimistic forecasts for the first quarter of 2023. The Russian economy, which has endured a series of sanctions from the West, is slowly but surely adapting to the lack of economic ties with the West, especially Europe.
All this said, every sector and aspect of the global economy, every region of trade, has shown resilience and growth despite unprecedented challenges, and that ability is expected to provide a solid foundation for 2024.
Next, the specter of an inflationary crisis is fading. Inflation is generally on a downward trend in many parts of the world. According to the IMF’s World Economic Outlook, core inflation is on track to fall from 9.2% in 2022 to 5.9% this year and could fall further to around 4.8% in 2024. Core inflation, which excludes food and energy prices, is expected to fall to 4.5%.
Goldman Sachs Research analysts expressed optimism about global economic growth in 2023, saying that the result has surpassed the expectations of most economists and the supply chain shocks caused by the pandemic have also eased.
A typical example is the United States - the world's number one economy - which not only avoided a deep recession but also grew at a stable rate. Consumer spending increased strongly, investment grew steadily, with effective support from a solid job market and a record low unemployment rate (about 3.9%) for many years.
Notably, the cooling inflation trend in many countries around the world is pushing central banks to cut interest rates or at least not raise them as they have in most months of 2023. Lower borrowing costs are a driving force for investment and home buying.
Major central banks could now cut interest rates in 2024 sooner than expected, which will be a relief to many households and businesses around the world.
New Year Hope
The economic outlook remains highly uncertain, say analysts at the Harvard Business Review , a Harvard Business School publication. With higher interest rates roiling the system, devastating military conflicts around the world, and climate disasters becoming more common, the five-year growth outlook for the global economy has never been worse.
The Financial Times notes that these positives are no reason to be complacent. The global economy will face many difficulties 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 2024 will actually be better than expected.
There are still challenges facing the global economy in the new year, causing people's lives in many regions to suffer and the economy to stagnate. Notably, economic policies are dominated by conflicts between alliances and blocs.
The Russia-Ukraine conflict is pushing the global economy in different directions, with the parties maintaining support and cooperation with Moscow and the other way around. While China, India and Türkiye are increasingly buying Russian oil, Europe is gradually cutting back.
In addition, Houthi attacks in the Red Sea are contributing to the disruption of the global economy, pushing up shipping, insurance and oil prices, and forcing traffic to divert to longer and more expensive routes…
The global economy is currently divided along different lines. Economies that rely heavily on manufacturing and trade are performing worse than others, such as Germany, which has seen a significant recession in three-quarters of 2023. Meanwhile, economies that focus on service development are performing better, such as France and the US.
However, in the coming time, due to many different impacts, this trend can completely reverse. The unpredictability in the growth direction of these economies will make it difficult for investors to make decisions.
Given the challenges, some experts have been more cautious in their predictions. Fitch Ratings said that global economic growth in 2024 will be only 2.1%, down from an estimated 2.9% in 2023. The National newspaper was optimistic that, although analysts pointed out that global growth is expected to slow in 2024, the worst may be over and headwinds may be easing.
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