Much like a skilled player navigating the dynamic odds at IviBet, the world economy has demonstrated greater resilience than most analysts predicted at the beginning of 2023. Global inflation has decreased without significant rises in unemployment, reflecting a strategic balance. Yet, policymakers aiming to achieve a ”soft landing” for the economy still face challenges.
Global Economic Outlook for 2024: Navigating Through Slowdown and Recovery
The OECD predicts global economic growth will slow in 2024 due to high-interest rates reducing inflation and economic activity. Growth isn’t expected to pick up until 2025. There’s a slight decrease in global GDP growth forecast from 2.9% in 2023 to 2.7% next year. This slowdown is partly due to the lasting economic effects of COVID-19. It is also due to the energy crisis following Russia’sRussia’s invasion of Ukraine. Despite previous fears of a U.S. recession and debt crises in developing countries, the global economy has managed its growth reduction well. Looking ahead, experts will watch three critical economic factors. They will do this to understand the future direction of the global economy.
U.S. Federal Funds rate
The U.S. Federal Reserve raised interest rates from near-zero to 5.25-5.5% to combat inflation. This shows the U.S. economy can handle high borrowing costs. Unemployment is low, and inflation is decreasing. U.S. economic growth is at 2% annually. Analysts now believe the Fed might avoid a recession. They might achieve a smooth reduction in inflation. Yet, there are concerns. Unemployment is inching up. Consumer savings are decreasing. Higher interest rates could increase debt risks. Traders expect a possible rate cut by the Fed next March, with a 76% chance, according to CME FedWatch. A recession, which may lead to rate cuts to stimulate growth, is expected in the second half of 2024. These cuts could also attract investment to emerging markets with higher returns.
“As such, I expect a one percentage point drop in the Fed Funds rate to raise global GDP by 1 percent,” he said.
He pointed out that “keeping rates steady” would have the opposite effect. An external shock, like an unexpected jump in oil prices, could lift inflation again. It could also force the Fed to keep rates on hold or raise them. That would undermine U.S., and even global growth.”
Brent crude oil prices might increase due to tensions in the Middle East. After recent conflicts, the World Bank warned that prices could reach $140-$157 per barrel in a big crisis. In a smaller one, they could reach $102-$121. Yet, despite these tensions, prices are below $79 per barrel, down from $92.4. This is because the global economy is more robust now. It is also less dependent on Middle Eastern oil than in the past. The Middle East’s share in global oil supply has decreased from 37% to 30% over the last 50 years.
U.S. energy supplies have grown. We’re using energy more efficiently and have more renewable options. John Baffes of the World Bank thinks oil traders are not very worried. They don’t believe the Middle East tension will affect prices. Right now, at least. They misjudged the impact of Russia’sRussia’s invasion of Ukraine on oil supplies last year. Now, they’re they’re cautious. Baffes believes even a $20 increase in Brent crude prices due to Middle East issues won’t significantly affect global growth. Perhaps 0.1%. He told Al Jazeera that concerns about high energy prices impacting the global economy are outdated because supply chains have evolved since the 1970s.
Challenges in China’sChina’s Economy: COVID-19 Aftermath and Real Estate Slowdown
China’s economy is struggling after its COVID-19 policies and a property sector slowdown. This matters globally because China is a significant player in world trade and supply chains. The real estate sector is a big part of China’s economy. It is down due to reduced debt financing and falling house prices. Moody’s even lowered China’s debt rating outlook because of these issues. Local governments in China used to rely on real estate for income. Now, they are struggling financially. They’ve been spending a lot on pandemic relief and infrastructure. Currently, they need help from the national government. Despite these challenges, China’sChina’s credit growth increased by 9.4% last November. Half of the growth came from government bond sales.
China’sChina’s growth is currently supported by government financing. This could be better for the long term. Economists are watching loan demand to gauge China’s economic recovery. Slow credit growth usually means businesses and consumers are saving more than spending. Credit growth in China is expected to slow from 10% this year to 8% next year. However, this might not significantly impact China’s GDP or global growth. The Chinese government is planning more stimulus measures to boost the economy. Despite these efforts, predicting global growth remains tricky, as past forecasts often need to be revised.