Global Economic Outlook 2024: Desyncronised Growth Amid Geopolitical Uncertainty
• 2024 is expected to be a year of macroeconomic normalisation in advanced economies, with inflation, interest rates, and growth gradually reverting to pre-pandemic patterns. The growth outlook, however, is fragmented with pockets of continued resilience in emerging markets.
• At the same time, significant uncertainties lie around these assumptions. Geopolitics will be the centre of attention this year, with tensions raging high in the Middle East and Eastern Europe and major elections due in key markets.
• We explore three key macroeconomic questions for 2024: Will the world see a recession this year? Will interest rates and inflation normalise? Will China’s economic outlook stabilise in 2024?
The global economy continues to confront the impact of high interest rates and we expect global growth and inflation to moderate in 2024. Much of the global growth slowdown is likely to come from advanced economies, where high interest rates are filtering through into slowing consumption and investment growth. Bank credit growth has declined, and banks are raising credit lending standards, making it more difficult for consumers and businesses to borrow [1]. Loose post-pandemic fiscal policies, that had helped households accumulate savings and kept consumption supported, are also fading out.
That said, global growth will be fragmented, with pockets of still resilient growth in some economies. As opposed to slowing growth in many advanced economies, growth in Emerging Asia (ex-China) is expected to remain strong and at par with trend (see Figure 2). This is especially the case for Southeast Asia (the Philippines, Indonesia, Malaysia) and India. On the other hand, only a mild recovery is expected in Europe, while a moderation in real GDP growth is expected in the US and Japan (see Figure 1).
Inflation has peaked globally but is hovering above central banks’ targets. The prices of food items and energy have tempered, and supply chains have normalised since the pandemic, sharply bringing down the costs of goods. However, the price of services is still high amidst rising wage pressures and tight labour markets in advanced markets. This is keeping core inflation (the less volatile component of inflation that excludes food and energy costs) elevated. With these effects on core inflation proving harder to dissipate, 2024 will see central banks walking a tightrope in balancing their growth and inflation objectives. While recent sentiments have turned more optimistic about interest rates easing in 2024, we believe rates in key markets have peaked but could remain higher for longer.
Geopolitics will command centre-stage this year. Ongoing geopolitical frictions in the Middle East and Eastern Europe have remained largely contained to their borders. The impact of the Russia-Ukraine war on global commodities has eased, after significantly impacting energy prices in 2022. While we expect geopolitical frictions to continue through 2024, in our base case, we expect these conflicts to remain contained, not expanding beyond their borders, and not severely impacting global commodities.
A spate of elections in 2024 will also play a role in global geopolitics as well as the global trade outlook. 40+ countries, representing more than 40% of the global population, are expected to hold national elections this year, with particularly important elections to watch in Taiwan (January), India (April-May) and the US (November). The outcomes of these elections could have significant implications for the US-China relationship, the ongoing supply chain restructuring as well as the interactions in the Taiwan Strait.
As several economies continue to face strains from ageing demographics, large debt, deglobalisation and slowing trade as well as decarbonisation and energy transition, the political shifts would also be important in defining the policy direction on these medium-term socio-economic trends that will guide the growth and fiscal outlook.
Three Key Questions for 2024
Global growth is expected to slow but to avoid a recession in 2024. Global growth will likely be desynchronised as major economies face varying pressures from inflation, interest rates, wages and trade protectionism.
In the US, a major driver of growth – its resilient private consumption – is expected to moderate. US consumption has seen significant tailwinds from tight labour markets, strong real wage growth (see Figure 4) and robust retail sales. Accumulated household savings from US post-pandemic fiscal policies have also been supportive of consumption. However, these tailwinds are expected to fade in 2024 as the economy and job growth come under pressure from tight monetary policy and fiscal offsets dwindle. The IMF expects US growth to slow to 1.5% in 2024 from 2.1% in 2023. Business investment spending has also slowed, except in certain high-tech sectors supported under the Inflation Reduction Act, and the CHIPS and Science Act in 2023. Business investment in the US is expected to decline further as firms gradually refinance loans at higher interest rates in 2024.
In Europe, GDP growth stalled in 2H 2023, due to weaker household consumption and tepid global trade. Slower global trade (see Figure 5), the energy price shock from the Russia-Ukraine war, and high interest rates led to slowing manufacturing growth and business activity in Europe in 2023. The post-pandemic fiscal impulse in Europe has also been weaker than in the US. However, with inflation falling faster than anticipated in the Euro area, we expect easing monetary policies by mid-2024 to provide support for a mild recovery in growth and investment. Another tailwind for growth in the Eurozone is likely to be the higher disposable incomes from rising real wages (see Figure 4) that should support household consumption this year.
Weak external demand for goods and rising protectionism have also impacted other export-oriented economies in Asia – notably China. China’s exports declined by 5% in 2023 versus 2022. Being a large export-oriented economy, slowing trade has affected manufacturing, business activity and employment. Manufacturing PMIs are in contraction even as businesses are cutting prices to boost volumes, driving a deflation in producer prices. On the domestic front, a multiyear clean-up of the property sector balance sheets and local government debt is expected to continue weighing on growth, even as monetary and fiscal policy support has stepped up, seeking to offset some of the growth weakness. Overall, China’s growth is expected to be at around 5% for the year.
In Emerging Asia (ex-China), domestic demand remains buoyant. Having avoided a painful high interest rate cycle that many advanced economies witnessed, in Emerging Asia, consumption demand has remained robust during the post-pandemic period. The global restructuring of supply chains has also benefited the region, bringing in investment inflows, particularly in South and Southeast Asian economies. According to a UN report [2] , investment inflows into Asia grew by a resilient 35%, with Southeast Asia receiving 40%, the largest share of these FDI investments, and India receiving a 22% share or USD 68 billion in investment inflows in 2023. Moreover, pre-election spending could also contribute to consumption support for many emerging economies heading into elections this year.
In Japan, growth is expected to moderate compared to 2023, but remain above its long-term trend. A weaker yen has supported exports, corporate profits and inbound tourism for Japan in 2023. However, as the Bank of Japan (BOJ) looks to normalise monetary policy (i.e. potentially exit negative interest rate policy and yield curve control), these gains are set to partially reverse in 2024, along with a strengthening in the yen. Moreover, with real wage growth in Japan still negative (see Figure 4), we believe gains in Japan’s private consumption could prove difficult to sustain.
[II] Will global interest rates and inflation normalise in 2024?
Headline inflation is expected to continue declining gradually through 2024, alongside slowing global growth. Goods prices have already eased as supply chains normalised and the effects of the Russia-Ukraine war on gas prices dissipated. The soft growth in China is also likely to keep commodity and goods prices depressed, assuming no major disruptions from geopolitical tensions this year.
Further disinflation is likely to come from cooling labour markets and wage growth, which in turn should drive services disinflation. This process has already started in the US, where nominal wage growth has peaked, declining to 4.6% in Q3 2023 from 5.3% in Q2 2022. Jobless claims are rising, indicating that wage pressures should ease further this year. On the other hand, in the UK and Europe, nominal pay growth is still accelerating and growing at over 5% year-on-year.
As headline inflation rates turn lower, most central banks have indicated that they are done lifting interest rates, but that monetary policy will need to remain sufficiently restrictive for inflation to return to central bank targets. Figure 6 shows advanced market central banks’ projections for inflation changes over 2024. The US Federal Reserve surprised markets in December when members projected rate cuts by three-quarters of a percentage point in 2024. This contrasts with the more hawkish tone adopted by the European Central Bank (ECB), despite the ECB projecting a similar reduction in inflation in the year. Markets are forecasting an even deeper rate cut cycle than central bank projections (see Figure 7).
However, central bank policy will depend on a number of factors other than inflation, including the growth trajectory, business and consumer confidence and labour market conditions. We expect central banks to reduce rates gradually in the second half of 2024, as monetary policy is kept restrictive enough for the disinflation process to continue.
China’s ongoing economic transition will continue to weigh on its macro outlook for 2024, as it addresses key structural challenges of clean-up of property balance sheets, high local government leverage and manufacturing overcapacity. At the same time, weak external demand and geopolitical tensions pose challenges to China’s external growth.
Activity data such as industrial production, retail sales and services (see Figure 8) point to a cyclical bottoming of economic activity in mid-2023. However, the property sector, which accounts for about 30% of China’s GDP, is undergoing a deep correction following the “three red lines” leverage regulations that were introduced in August 2020. Since 2022, there has been a 20% contraction in property sales (by floor space) and a 15% contraction in real estate investment (see Figure 9). Moreover, the negative wealth effects and poor sentiment from the property sector correction are feeding into more cautious consumer sentiment and spending.
Policy support for the economy has stepped up since late 2023. This included reasonable liquidity provision for property developers and more effective use of fiscal policy. However, the measures so far are likely only countercyclical support and are not intended as a reflationary boost to growth. Recent key policy meetings – the Central Economic Work Conference (CEWC) and the Politburo meetings – kept their focus on structural reforms and economic stability, suggesting that no major change is expected in the policy direction or the provision of cyclical stimulus.
As part of the economic transition, China will prioritise investment in “new economy” sectors such as AI, biomanufacturing, and “the three new” green economy areas – namely batteries, renewables, and EVs. China is already a leader in EV car sales and is seeing a tipping point in auto and EV exports, despite being subject to US tariffs. With a policy focus on “establishing the new before abolishing the old”, investment in these sectors will likely gain further momentum this year.
In the near term, China’s growth path remains bumpy as it undergoes an uncertain deleveraging and economic transition. In our base case, we expect systemic risks from the property sector deleveraging to be well-managed and controlled. With fiscal and monetary policy likely acting as countercyclical support, we expect growth for 2024 to be maintained at “around 5%”.
However, we acknowledge large uncertainties around these assumptions from the possibility of an escalation in geopolitical tensions as well as potential socio-economic policy shifts following elections in a number of key economies this year. The ongoing deleveraging in China is also fraught with risks. 2024 will see economies navigating significant structural, political and cyclical shifts.
[1] Federal Reserve: Senior Loan Officer Opinion Survey on Bank Lending Practices, October 2023
[2] UNESCAP: Foreign Direct Investment Trends and Outlook in Asia Pacific 2023/2024, 15 December 2023
• At the same time, significant uncertainties lie around these assumptions. Geopolitics will be the centre of attention this year, with tensions raging high in the Middle East and Eastern Europe and major elections due in key markets.
• We explore three key macroeconomic questions for 2024: Will the world see a recession this year? Will interest rates and inflation normalise? Will China’s economic outlook stabilise in 2024?
The global economy continues to confront the impact of high interest rates and we expect global growth and inflation to moderate in 2024. Much of the global growth slowdown is likely to come from advanced economies, where high interest rates are filtering through into slowing consumption and investment growth. Bank credit growth has declined, and banks are raising credit lending standards, making it more difficult for consumers and businesses to borrow [1]. Loose post-pandemic fiscal policies, that had helped households accumulate savings and kept consumption supported, are also fading out.
That said, global growth will be fragmented, with pockets of still resilient growth in some economies. As opposed to slowing growth in many advanced economies, growth in Emerging Asia (ex-China) is expected to remain strong and at par with trend (see Figure 2). This is especially the case for Southeast Asia (the Philippines, Indonesia, Malaysia) and India. On the other hand, only a mild recovery is expected in Europe, while a moderation in real GDP growth is expected in the US and Japan (see Figure 1).
| Figure 1: Moderate slowdown expected in advanced economies in 2024 | Figure 2: Emerging Asia (ex-China) growth outlook is resilient |
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Source: CEIC, IMF WEO |
Source: CEIC, IMF WEO |
Inflation has peaked globally but is hovering above central banks’ targets. The prices of food items and energy have tempered, and supply chains have normalised since the pandemic, sharply bringing down the costs of goods. However, the price of services is still high amidst rising wage pressures and tight labour markets in advanced markets. This is keeping core inflation (the less volatile component of inflation that excludes food and energy costs) elevated. With these effects on core inflation proving harder to dissipate, 2024 will see central banks walking a tightrope in balancing their growth and inflation objectives. While recent sentiments have turned more optimistic about interest rates easing in 2024, we believe rates in key markets have peaked but could remain higher for longer.
Geopolitics will command centre-stage this year. Ongoing geopolitical frictions in the Middle East and Eastern Europe have remained largely contained to their borders. The impact of the Russia-Ukraine war on global commodities has eased, after significantly impacting energy prices in 2022. While we expect geopolitical frictions to continue through 2024, in our base case, we expect these conflicts to remain contained, not expanding beyond their borders, and not severely impacting global commodities.
A spate of elections in 2024 will also play a role in global geopolitics as well as the global trade outlook. 40+ countries, representing more than 40% of the global population, are expected to hold national elections this year, with particularly important elections to watch in Taiwan (January), India (April-May) and the US (November). The outcomes of these elections could have significant implications for the US-China relationship, the ongoing supply chain restructuring as well as the interactions in the Taiwan Strait.
As several economies continue to face strains from ageing demographics, large debt, deglobalisation and slowing trade as well as decarbonisation and energy transition, the political shifts would also be important in defining the policy direction on these medium-term socio-economic trends that will guide the growth and fiscal outlook.
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Three Key Questions for 2024
[I] Will the world see a recession in 2024?
Global growth is expected to slow but to avoid a recession in 2024. Global growth will likely be desynchronised as major economies face varying pressures from inflation, interest rates, wages and trade protectionism.
In the US, a major driver of growth – its resilient private consumption – is expected to moderate. US consumption has seen significant tailwinds from tight labour markets, strong real wage growth (see Figure 4) and robust retail sales. Accumulated household savings from US post-pandemic fiscal policies have also been supportive of consumption. However, these tailwinds are expected to fade in 2024 as the economy and job growth come under pressure from tight monetary policy and fiscal offsets dwindle. The IMF expects US growth to slow to 1.5% in 2024 from 2.1% in 2023. Business investment spending has also slowed, except in certain high-tech sectors supported under the Inflation Reduction Act, and the CHIPS and Science Act in 2023. Business investment in the US is expected to decline further as firms gradually refinance loans at higher interest rates in 2024.
In Europe, GDP growth stalled in 2H 2023, due to weaker household consumption and tepid global trade. Slower global trade (see Figure 5), the energy price shock from the Russia-Ukraine war, and high interest rates led to slowing manufacturing growth and business activity in Europe in 2023. The post-pandemic fiscal impulse in Europe has also been weaker than in the US. However, with inflation falling faster than anticipated in the Euro area, we expect easing monetary policies by mid-2024 to provide support for a mild recovery in growth and investment. Another tailwind for growth in the Eurozone is likely to be the higher disposable incomes from rising real wages (see Figure 4) that should support household consumption this year.
| Figure 4: Rise in real wages in the US and the EU supportive of consumption growth | Figure 5: Global trade volumes have declined in 2023 |
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Source: CEIC |
Source: CEIC, CPB |
Weak external demand for goods and rising protectionism have also impacted other export-oriented economies in Asia – notably China. China’s exports declined by 5% in 2023 versus 2022. Being a large export-oriented economy, slowing trade has affected manufacturing, business activity and employment. Manufacturing PMIs are in contraction even as businesses are cutting prices to boost volumes, driving a deflation in producer prices. On the domestic front, a multiyear clean-up of the property sector balance sheets and local government debt is expected to continue weighing on growth, even as monetary and fiscal policy support has stepped up, seeking to offset some of the growth weakness. Overall, China’s growth is expected to be at around 5% for the year.
In Emerging Asia (ex-China), domestic demand remains buoyant. Having avoided a painful high interest rate cycle that many advanced economies witnessed, in Emerging Asia, consumption demand has remained robust during the post-pandemic period. The global restructuring of supply chains has also benefited the region, bringing in investment inflows, particularly in South and Southeast Asian economies. According to a UN report [2] , investment inflows into Asia grew by a resilient 35%, with Southeast Asia receiving 40%, the largest share of these FDI investments, and India receiving a 22% share or USD 68 billion in investment inflows in 2023. Moreover, pre-election spending could also contribute to consumption support for many emerging economies heading into elections this year.
In Japan, growth is expected to moderate compared to 2023, but remain above its long-term trend. A weaker yen has supported exports, corporate profits and inbound tourism for Japan in 2023. However, as the Bank of Japan (BOJ) looks to normalise monetary policy (i.e. potentially exit negative interest rate policy and yield curve control), these gains are set to partially reverse in 2024, along with a strengthening in the yen. Moreover, with real wage growth in Japan still negative (see Figure 4), we believe gains in Japan’s private consumption could prove difficult to sustain.
[II] Will global interest rates and inflation normalise in 2024?
Headline inflation is expected to continue declining gradually through 2024, alongside slowing global growth. Goods prices have already eased as supply chains normalised and the effects of the Russia-Ukraine war on gas prices dissipated. The soft growth in China is also likely to keep commodity and goods prices depressed, assuming no major disruptions from geopolitical tensions this year.
Further disinflation is likely to come from cooling labour markets and wage growth, which in turn should drive services disinflation. This process has already started in the US, where nominal wage growth has peaked, declining to 4.6% in Q3 2023 from 5.3% in Q2 2022. Jobless claims are rising, indicating that wage pressures should ease further this year. On the other hand, in the UK and Europe, nominal pay growth is still accelerating and growing at over 5% year-on-year.
As headline inflation rates turn lower, most central banks have indicated that they are done lifting interest rates, but that monetary policy will need to remain sufficiently restrictive for inflation to return to central bank targets. Figure 6 shows advanced market central banks’ projections for inflation changes over 2024. The US Federal Reserve surprised markets in December when members projected rate cuts by three-quarters of a percentage point in 2024. This contrasts with the more hawkish tone adopted by the European Central Bank (ECB), despite the ECB projecting a similar reduction in inflation in the year. Markets are forecasting an even deeper rate cut cycle than central bank projections (see Figure 7).
However, central bank policy will depend on a number of factors other than inflation, including the growth trajectory, business and consumer confidence and labour market conditions. We expect central banks to reduce rates gradually in the second half of 2024, as monetary policy is kept restrictive enough for the disinflation process to continue.
| Figure 6: Central banks’ inflation projections for 2024 compared to 2023 | Figure 7: Market expectations of interest rate changes over 2024 |
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Source: Central banks’ policy statements |
Source: Bloomberg |
[III] Will China’s economy stabilise this year?
China’s ongoing economic transition will continue to weigh on its macro outlook for 2024, as it addresses key structural challenges of clean-up of property balance sheets, high local government leverage and manufacturing overcapacity. At the same time, weak external demand and geopolitical tensions pose challenges to China’s external growth.
Activity data such as industrial production, retail sales and services (see Figure 8) point to a cyclical bottoming of economic activity in mid-2023. However, the property sector, which accounts for about 30% of China’s GDP, is undergoing a deep correction following the “three red lines” leverage regulations that were introduced in August 2020. Since 2022, there has been a 20% contraction in property sales (by floor space) and a 15% contraction in real estate investment (see Figure 9). Moreover, the negative wealth effects and poor sentiment from the property sector correction are feeding into more cautious consumer sentiment and spending.
Policy support for the economy has stepped up since late 2023. This included reasonable liquidity provision for property developers and more effective use of fiscal policy. However, the measures so far are likely only countercyclical support and are not intended as a reflationary boost to growth. Recent key policy meetings – the Central Economic Work Conference (CEWC) and the Politburo meetings – kept their focus on structural reforms and economic stability, suggesting that no major change is expected in the policy direction or the provision of cyclical stimulus.
As part of the economic transition, China will prioritise investment in “new economy” sectors such as AI, biomanufacturing, and “the three new” green economy areas – namely batteries, renewables, and EVs. China is already a leader in EV car sales and is seeing a tipping point in auto and EV exports, despite being subject to US tariffs. With a policy focus on “establishing the new before abolishing the old”, investment in these sectors will likely gain further momentum this year.
In the near term, China’s growth path remains bumpy as it undergoes an uncertain deleveraging and economic transition. In our base case, we expect systemic risks from the property sector deleveraging to be well-managed and controlled. With fiscal and monetary policy likely acting as countercyclical support, we expect growth for 2024 to be maintained at “around 5%”.
| Figure 8: China’s activity indicators have bottomed out in mid-2023 | Figure 9: China’s property sector is in contraction |
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Source: CEIC |
Source: CEIC |
Takeaways
Our economic outlook for 2024 assumes slowing global growth, albeit a desynchronised one, a gradual moderation in inflation, and a slow decline in interest rates in the second half of 2024. We also assume China’s economic growth remains stable at around 5% and geopolitical tensions in the Middle-East and Eastern Europe remain contained. Emerging market growth is likely to be a bright spot.However, we acknowledge large uncertainties around these assumptions from the possibility of an escalation in geopolitical tensions as well as potential socio-economic policy shifts following elections in a number of key economies this year. The ongoing deleveraging in China is also fraught with risks. 2024 will see economies navigating significant structural, political and cyclical shifts.
[1] Federal Reserve: Senior Loan Officer Opinion Survey on Bank Lending Practices, October 2023
[2] UNESCAP: Foreign Direct Investment Trends and Outlook in Asia Pacific 2023/2024, 15 December 2023
