According to economists, the global economy is expected to slow down next year due in part to persistently high interest rates in major economies. This follows a growth that exceeded expectations in 2023.
Consensus Economics has compiled a collection of forecasts that predict a 2.1 percent growth in output by 2024. This is down from the expected 2.4 percent growth this year.
The unexpectedly high consumer demand and the tight labour market have led economists to upgrade their expectations for this year by one percentage point.
Simon MacAdam is a senior global economist with Capital Economics. He said that a part of the slowdown in 2024 will be due to “some basic effects” of better production this year affecting growth the following year. He added, however, that economists have “truly become more pessimistic about prospects for 2024”.
The warning is based on the belief persistently high inflation will continue to be a problem for a long time, and that rate-setters of advanced economies may have to raise borrowing costs well into next.
Nathan Sheets is the chief economist of Citi, a US bank. He said that “services demand has continued unabated. The labour market remains strong and wages continue to rise.” Some of the anticipated weakness for this year is being pushed into 2024.
Sheets said that in many countries including the US “there will be recession. It’s going to happen later”.
The Federal Reserve had been expected to start lowering rates in this year, but that was a few short months ago. The strength of the US economic system has led to the possibility of a slight increase in borrowing costs, resulting in a range between 5,5% and 5.75%. The first rate reduction is expected to occur in the spring next year, according to economists.
Mark Zandi is the chief economist at Moody’s Analytics. He said that there’s a good chance the US will avoid recession in 2019. “This means the Fed will raise rates for a longer period of time to quell inflation. This will result in slower growth by 2024.”
He said that, apart from Germany the European economy also performed “somewhat better” than expected this year. This means the European Central Bank (ECB) and Bank of England are likely to keep interest rates higher longer.
The ECB raised its deposit rates from minus 0.5 percent in June 2022 up to 3.75 percent today and it is not expected to start cutting until the majority of next year.
It is thought that the BoE will increase borrowing rates by another half-point to 5.75 percent by the end the year. However, it is unlikely to start cutting until the second quarter of 2024. The economic downturn in China after the pandemic recovery also contributed to pessimism among economists for 2024. Christian Keller, Barclays’ head of economics, called the slowdown “structural”.
Keller said: “The direction of 2024 appears quite clearly to be a further slowdown in the global economy.”
The average economist expected that the US economy would slow down to 0.6% in 2024 from 1.9% this year.
The UK and eurozone will likely maintain their pedestrian pace both years. China, however, is expected to suffer from structural problems as well as a decline in manufacturing and exports.
India’s economic growth is expected to be healthy until 2024, thanks to robust domestic demand.