The global economy is in better shape than it was in July, but its strength is now fading
From our vantage point at the end of 2023, we can look back and see that global GDP growth fared better than we had expected and certainly better than we had predicted six months ago. This is largely thanks to US consumers and western tourists. Strong US consumer spending and the recovery of services following pandemic shutdowns have helped to drive global growth. Tourism and international travel have also enjoyed stronger growth than we had anticipated, especially in Southern Europe, France and Mexico where the industry largely returned to pre-pandemic levels.
The central question now is: are the dark days of high inflation and monetary tightening over? Are we witnessing the start of true recovery, where global GDP returns to growth? Surely holidays and foreign travel are a sign of consumer confidence? Or is the growth we have seen in the tourism industry simply an example of people scratching the itch to travel, following the re-opening of borders and lockdown restrictions?
Looking ahead the signs are that it is still too soon for celebration. There are four key areas, in particular, that suggest GDP growth will remain slow in 2024.
Four signs pointing towards a challenging 2024
One. US consumers have been flexing their spending power over recent months, but personal cash reserves built up during the pandemic lockdowns are likely to be used up soon. What’s more any lag in the effect of monetary tightening is also expected to kick in during the next few months. Both of these effects will impact consumer confidence and result in a slowdown in consumer spending.
Two. Manufacturing is unlikely to pick up pace significantly in 2024. Many firms are grappling with high borrowing costs caused by monetary tightening. And, with weak consumer demand on the horizon, many are reluctant to invest in production growth.
Three. Core inflation remains frustratingly tenacious. It should begin to subside over the course of next year if consumers rein in spending and energy prices remain consistent. Neither are guaranteed. If consumers continue to spend, or we experience another energy price shock, central banks will most likely reverse their currently expected policies of mild easing and return to raising interest rates in a bid to halt further increases in inflation.
Four. Geopolitical uncertainty can lead to economic uncertainty on the global stage. There are currently three areas of geopolitical tension that give cause for economic concern. US President Biden has not succeeded in improving relations with China, which had soured under the Trump administration. Russia’s war with Ukraine will reach its second anniversary in February. Although contained for now within local borders, the Israeli-Palestinian conflict harbours the potential for wider destabilisation in the region.
Are there any bright lights on the horizon?
Are we at risk of leaning towards a view that is too negative? Possibly. It could be argued that we are naturally cautious. Indeed, our previous forecast erred on the side of predicting a slower economy than the one we have seen over the past six months. But, as much as we would prefer to be upbeat, we expect consumer caution and only a very gradual recovery in the manufacturing sector will put the brakes on economic growth for a little while longer yet.
In our report: Atradius Economic Outlook: Tightening weighing in, we explore global and regional growth trends. Our conclusion is that although the global economy has shown greater resilience than expected, and although growth will continue to be driven from the emerging markets in Asia, this will be slow and the overall global outlook remains weak.
Download our report: Economic Outlook, December 2023
