Global economic growth for 2024 to be muted

1st December 2023

By: Schalk Burger

Creamer Media Senior Deputy Editor


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The global economy is expected to remain weak in 2024, but inflation is likely to gradually decrease, and rate cuts may be on the cards in the second half of the year, economic forecasting and econometric analysis company Oxford Economics has said.

"We forecast that global growth is likely to be a bit weaker than the consensus estimate, with the risks skewed to the downside," Oxford Economics Global Macroeconomic Research director Ben May said during a briefing on December 1.

"Generally speaking, there are some signs that economic resilience is fading and recent downward trends in recent months mean we are ending the year on a weaker note," he said.

After a sharp slowdown in the final quarter of this year, there is expected to be no improvement during the first quarter of 2024, and only a gradual improvement throughout the remainder of next year.

However, growth rates are not expected to reach 2015 to 2019 levels, even by the end of 2024.

"This weaker profile leaves us at the lower end of the consensus and we are expecting both advanced and emerging economies to grow more weakly than the consensus," he said.

The reasons for the forecasting firm's cautious outlook is because some of the strength seen in 2023, such as spending of excess savings in the US and China's emergence from zero Covid-19, which saw a burst of activity, has since faded.

"This spending is unlikely to happen again in the coming year and points to weaker activity in 2024 than what we previously envisaged," said May.

Additionally, some pain is still likely to come through from past rate hikes, with some estimates in the US indicating that it is only now getting to the peak impact of monetary policy tightening.

"The impact will subside as we move through the year, but there is uncertainty around this. There is lots more debt with longer maturities and more fixed rates, which suggests the translation mechanism may have lengthened. This means the risk that consensus assumptions may be too optimistic and there may be a more drawn out adverse impact from past rate hikes on activity," he explained.

Monetary policy tightening would continue to act as a constraint to growth, not only in the US but other economies as well, he added.

Meanwhile, the perceived overall resilience of economic activity may be masking some unusual patterns in sectoral data, with some sectors' gains offsetting reductions in activity in others.

"What this means is that next year these sectors may perform poorly compared to 2023, and we may well see a period of rolling recovery, with a slower pickup in activity as things start to get better," said May.

Further, many developed and emerging economies are also expected to tighten fiscal policy over the course of 2024, and this could lead to more muted growth into the following year.

"While core inflation has come off its peak everywhere, there will still be a further slowdown in inflation.

"While the gradual fall in inflation will be a bit above what was forecast and the growth that is expected to be a bit lower, there are some bright spots," he said.

While most developed and emerging economies were expected to perform weaker than the 2015 to 2019 period, there were some outliers, with Japan being an example of a developed economy expected to exceed pre-pandemic growth levels, and some emerging economies, including Brazil and Mexico, and some other Latin American countries, expected to perform fairly well, noted May.

"While they are expected to perform strongly, especially when compared to the growth paths of other economies, the increases will not be dramatic enough to lift global growth," he said.

Additionally, another element that could increase optimism was that real mutual interest rates may be lower than that present in the market. For example, there were indications that the US real mutual interest rate was below zero, he illustrated.

"We are of the view that the longer term forward rates outlook is too high, and a key element of this view is that the market is overstating what the real mutual interest rate is," he said.

"This means that, even without the downside risk of growth or inflation persisting over the longer term playing out, we expect to see bond yields come down next year," May said.

Oxford Economics expected global gross domestic product growth to be the weakest since the global financial crisis, excluding 2020, but most economies would still have a moderately soft landing, with the US expected to avoid a recession and most of Europe gradually getting better, although the pace of increase would be slow, he said.

"Inflation will continue to fall back, but the pace of decline will gradually ease, and means that we can expect central banks to pivot from the middle to the end of next year with rate cuts that are likely to be gradual. Most central banks will want to see clear signs of wage growth that is consistent with their medium-term inflation targets," he said.

"There are plenty of risks on the radar, and the world remains quite volatile. This uncertainty is set to persist and create an uncertain backdrop for next year once again," May concluded.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online



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