In 2024, the outlook for the global economy is mixed. Leading financial institutions such as Goldman Sachs and several other financial institutions anticipate a favorable scenario. However, agencies such as Moody's, a leading credit rating agency, maintain a more cautious stance, noting remaining uncertainties despite a potentially more stable year compared to the unpredictable 2023.
Growth expectations for the world economy stand at 2.1% by 2024, based on a Bloomberg survey of economists. This forecast assumes that the increase in interest rates has impacted inflation as expected, balancing the need to control prices without excessively slowing the economy.
At the World Economic Forum in Davos in early 2024, Christine Lagarde of the European Central Bank (ECB) indicated that the "economic normalization"(referring to the reduction in inflation and the strengthening of global trade) is ongoing. This suggests cautious optimism, especially from a Eurozone perspective, about the global economy.
Is all this enough to justify the enthusiasm?
The truth is that there are still major global risks that could prolong the inflation situation, keeping rates high. Tensions in the Middle East, especially in the Red Sea and the civil war in Yemen, have impacted shipping costs, with a notable increase in container freight rates from US$1,340 in October 2023 to US$3,070 in January 2024. This situation, along with the Hamas-Israel conflict and Iran's actions in the region, could escalate and further affect the global economy. According to BBC Mundo, these attacks forced five major companies to use alternative trade routes, causing disruptions in the supply chain.
On the other hand, Russia's continued invasion of Ukraine remains a source of instability and concern. This conflict, which has yet to find resolution, contributes to global economic uncertainty, influencing aspects such as energy, trade and global security. All of these factors are crucial to consider when assessing the economic outlook for 2024 and beyond.
China and Japan, always important
China, a key driver of the global economy, faces a slowdown in 2024. Moody's projections indicate growth of 4.01GDP3Q, lower than in previous years, due to a slowdown in the momentum generated by the post-COVID reopening. In response to this slowdown, China has implemented stimulus measures focused on reviving the real estate and financial sectors, which have been particularly hard hit during the pandemic.
Japan, another significant economic player in Asia and globally, presents a different case. Unlike many economies, Japan has benefited from the current inflationary environment. After prolonged periods of deflation, the upturn in inflation has helped Japan move closer to a balance between prices, wages and output. However, the Bank of Japan anticipates a slowdown in this process by 2024, suggesting that the beneficial effects of current inflation may not be sustainable in the long term.
These dynamics in China and Japan are essential to understanding the Asian economic landscape and its influence on the global economy.
Emerging markets first to cut rates
Emerging markets are positioned to cut interest rates earlier than advanced economies, possibly in the middle of the first or second quarter of 2024. This is anticipated in anticipation that major central banks in developed economies will make rate cuts towards the end of the first half of the year.
In terms of economic growth, countries such as Mexico, India and Indonesia have shown remarkable resilience in the face of recent external shocks. As a result, significant growth rates are expected in these economies. Mexico, India and Indonesia have managed to maintain solid economic growth despite global challenges, reflecting their ability to handle external economic adversity.
However, the situation is not uniform across all emerging markets. In other nations in this category, economic contractions would be observed due to factors such as structural vulnerabilities, commodity dependence, political instabilities or constraints in their economic policy responses. These differences underscore the diversity of economic situations within the emerging market group, and the need for differentiated approaches to understanding and addressing their economic challenges and opportunities.
Conclusion
In summary, 2024 is shaping up to be a year in which uncertainty over recession concerns could diminish, driven by widespread optimism supported by positive global economic data and events. However, it is crucial to recognize that significant global risks remain that could disrupt this positive trend. These risks include, but are not limited to, geopolitical tensions, fluctuations in commodity markets, and economic challenges in emerging markets and developed economies.
Caution, therefore, remains a key word for economic players in 2024. It is essential for governments, financial institutions and investors to maintain a balance between taking advantage of growth opportunities and preparing for potential setbacks. This balanced approach will help mitigate the negative impacts of potential economic challenges and sustainably capitalize on favorable market conditions.
Article written by: Daniel Zalles, Rafael Zárate and Maycol Nuñez, all members of the Singular.
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