World Economic Forum split on the 2024 prospects of global economy
In a quest to provide our newsletter readers with a brief on whether the global economy is likely to strengthen or weaken in 2024, Macks Advisory trawled opinions submitted to the World Economic Forum by some of the planet’s most eminent economists.
Just over half of them (56%), expect businesses will be functioning in a weakened global economy this year, but 43% expect it to strengthen or remain unchanged.
Inconclusive though this may be, we nonetheless believe there could be value in analysing opinions submitted to the Forum in Switzerland last month, to see where and how they might affect your business or organisation in 2024.
Macks Advisory believes it would have been no surprise to competent businesspeople in Australia that generally speaking economists surveyed by the Forum agreed the global economy is fraught with uncertainty, that activity will remain slow, financial conditions tight, that geopolitical rifts will continue to stunt economic prospects, and economic headwinds will continue to buffet economies around the world.
And it would be no surprise to us if a survey of Australian CEOs revealed they were also close to being as equally divided as the Forum experts on to what extent, if any, the predicted headwinds would strengthen or weaken the global economy.
Conflicting insights
The World Bank’s latest Global Economic Prospects Report predicts global growth will slow to 2.4% this year before clawing its way to 2.7% in 2025 – which will bring relief and a measure of confidence to analysts who have been forecasting a “soft landing” for their economies from persistent high inflation.
But what could be wrong with this “soft landing” picture? Four things, according to the Bank’s Senior Vice President and Chief Economist Indermit Gill, who told the Forum they “Could upset the apple cart in 2024”.
- Conflict in Ukraine and the Middle East, critical suppliers of food and energy. Escalation of conflict could negate the global fight against inflation and destroy prospects of economic growth.
- China’s dramatic decline in economic growth, forecast to be the slowest since 1990 (outside of the COVID-19 era), and likely to damage the economies of all countries with economies substantially dependent on China, particularly those with global value supply chains (like Australia).
- Financial stress: it’s widely considered astonishing that the current biggest surge in global interest rates in 40 years hasn’t yet caused the havoc associated with the high interest era of the 1980s. However, if rates come down, it might not be fast enough or soon enough for the inflation-damaged economies of some countries.
- Trade fragmentation: where a country’s need is exploited by suppliers to increase their profits. Trade restrictions and “friendshoring”—sourcing from trusted, long-term suppliers irrespective of their location – are instinctive responses to this to allay any concerns about national security, but these are measures that could restrict a rebound in global trade.
The labour markets
Karin Kimbrough who is chief economist at LinkedIn told the Forum he believes the outlook for countries’ economies this year – be it for interest rates, growth, or technology – will depend substantially on labour markets.
Their resilience, he says, is a key barometer for monetary policy. If labour markets continue cooling gradually with minimal increases in the unemployment rate, it’s likely central banks will accomplish a rare soft landing. However, should a labour market weaken abruptly with an unemployment rate lurching higher, this would indicate expectation of a soft landing is unrealistic.
Labour markets are important in determining economic growth. As countries’ abilities lessen in exerting significant fiscal policies, so too do their abilities to achieve economic growth at, or above, trends that become increasingly reliant on consumer spending and confidence.
Trends, in turn, depend on consumers’ access to income, which for most people depends on employment – and we’re seeing labour markets slowing with increasing slack that’s creating competition among job seekers for fewer positions.
Some positive indications
Rima Bhatia, Group Economic Adviser, Gulf International Bank (GIB) told the World Economic Forum that although the economic narrative has been dominated by inflation pressures, policy tightening, geopolitical stress, banking sector concerns, and recession fears, the global economy ended last year on a positive note, performing above expectations for many metrics.
He says underlying this resilience are many transformative forces that are evolving and affecting every economic sector, industry and society in ways not seen for decades, setting a hopeful stage for this year that’s further enhanced by prosects of disinflation and the likelihood of central banks putting an end to a succession of interest rate hikes.
Indeed, at its board meeting on 5 February the Reserve Bank of Australia (RBA) ended 13 successive rate hikes, but although the Bank’s governor Michelle Bullock told a press conference “a further increase in interest rates cannot be ruled out”, there’s an increasing weight of opinion among analysts there will be two 0.25% cuts in interest rates by the end of the year and another two cuts in 2025.
Meanwhile SA is a monument to positivity, having in this situation, secured its position as a powerhouse in the Australian economy by achieving a record breaking $17.93b worth of exports for the 12 months ended December 2023.
The state’s prime achievement is its 8.5% year-on-year growth rate, the highest in the country. Its surge in exports stands in stark contrast to other states and territories, most of which recorded declines in their monthly export figures. (Only WA joins SA in positive territory, with a modest 1.1% increase.)
SA’s export record comes hot on the heels of a CommSec State of the States report, which ranked our state as having the number one economy in Australia. According to the report SA outperformed all other states in key areas such as economic growth, unemployment, construction work, and dwelling starts.
In as much as our roundup of experts’ opinions doesn’t reveal consensus on whether the global economy can be expected to grow, weaken, or remain pretty much as it is, we nonetheless hope readers can extract some useful perspectives from what they told the recent World Economic Forum.
Frankly we’re hardly surprised no consensus was reached at the recent pow-wow in Switzerland, which only confirmed that well known adage: “Irrespective of the number of economists laid end to end anywhere, anytime, it’ll never reach a conclusion.”
