The world economy in 2023 was like a blue dragon train in an amusement park soaring high. Central banks hastily raised interest rates to prevent the fires of inflation from spreading across the ground. The US Federal Reserve (hereinafter referred to as the Federal Reserve) raised interest rates to 5% for the first time in 16 years, and the Eurozone (20 countries using the euro) also entered the era of interest rates interest in the 4% range for the first time in 15 years.
The interest rate increase is now complete. In 2024, attention is being paid to how long the Blue Dragon Train will remain at its peak and then decline, and at what speed it will decline. It appears that how often inflation declines during this process will be a variable. Furthermore, other latent factors, such as China’s economic slowdown and geopolitical conflicts around the world, are expected to impact the decline. Additionally, various elections in major countries are also taken into account, including the US presidential elections.
There are various variables ahead of the world economy in 2024 that could fuel the economic recession. Of course, as the risk of inflation fades and interest rates fall accordingly, fuel is available to boost the economy. To gain even a little insight into the fog, WEEKLY BIZ asked 24 global economics and management scholars, economists or investment managers at global investment institutions about the direction of the global economy next year.
Graphics = Yang Jin-kyung
◇21 out of 24 people said: “Growth will slow.”
21 out of 24 experts predict that the growth rate of the global economy next year will be lower than this year. There are an overwhelming number of experts who believe that the road will be thornier this year.
Most importantly, many believe that the consequences of the sharp rise in interest rates will come seriously next year and will act as a factor in slowing the pace of growth. Professor Stephen Roach of Yale University said: “A slowdown in growth rates is expected in developed countries, particularly the United States, as the effects of monetary tightening will be felt in the time between 2022 and 2023.”
Many experts note that conditions in the United States and China, the two pillars of the world economy, are not good. UC Berkeley professor Barry Icongreen said: “Job creation in the United States is slowing and China is cautious about using macroeconomic stimulus measures (considering the burden of the national debt).” John Quelch, former dean of Miami Business School, also expressed the opinion: “Growth will not be easy until the second half of 2024 because the main engines of the global economy, the United States and China, are not running at full speed” . Kiuchi Takahide, chief economist of Nomura Research Institute, further said: “The sluggishness of the Chinese economy, which began to slow down due to the real estate recession, will continue in 2024, and the US economy will also slow its growth rate in following. of a sharp cut in interest rates.”
International organizations also share the opinions of these experts. As for the global economic growth rate this year and next year, the International Monetary Fund (IMF) expects it to fall from 3% to 2.9%, while the Organization for Economic Co-operation and Development (OECD) predicts it will fall from 2.9%. at 2.7%. Jon Pareliussen, director of Korean economic affairs at the OECD, said: “The tightening of the financial situation, weakening of trade and deterioration of consumer confidence will be the reasons for the slowdown in global economic growth.”
Graphics = Yang Jin-kyung
However, even if the growth rate is lower than this year’s, most experts expect a gradual decline rather than a sharp decline. Angel Uvide, head of bond and macroeconomic research at Citadel Securities, said: “We don’t expect an economic recession, just a slowdown in growth, and even if there is a recession, it will be minor.” Professor John Longo of Rutgers University said: “Even if the US economy goes into recession next year, it would likely be a short-term recession lasting about six months,” and Mark Hafele, Chief Investment Officer of UBS Global WM, said: “There is great uncertainty, but technological innovation is likely to continue.” “Growth will also happen on the basis of this,” he said.
Graphics = Kim Eui-gyun
◇Geopolitical instability is a risk factor
Experts have cited geopolitical instability as a risk factor for the global economy in 2024. MIT professor Yossi Sheppi said: “The risk factor is the growing tension between Western democracies and Russia, China, Iran, North Korea and terrorist groups”. Mark Zandi, chief economist at Moody’s Analytics, said: “It is very likely that commodity prices will rise and global trade and investment will contract due to the war between Israel and Hamas, the war between Russia and Ukraine and the growing tensions between the United States and China.” Mark Levinson, former financial and economics editor of the Economist, said: “Once shots ring out, regional conflicts spread easily, just as they have spread to attacks on ships in the Red Sea after the war between Hamas and Israel,” adding: “There is a possibility that an unexpected armed conflict could spiral out of control.” “There is that,” he said.
Furthermore, it is believed that elections in major countries scheduled for next year, combined with geopolitical factors, could aggravate the burden on the economy. Quelch, former dean of Miami Business School, warned that “opportunistic actions by Russia or North Korea could occur in a U.S. presidential election year.” Charles Goodhart, professor emeritus at the London School of Economics, said: “The election of former President Donald Trump in the US presidential election could be a risk factor for the global economy.” Phil McIntosh, chief economist at Nasdaq, said: “If the economic slowdown leads to layoffs, a vicious cycle can occur in which consumer spending declines, business sales decline and the economy slows again.”
Conversely, a number of positive opportunity factors have also been presented to help the economy recover or prevent a sharp decline. Frederik Ericsson, director of the European Center for International Politics and Economics (ECIPE), said: “As the inflation rate decreases, the global economy will be in a better situation.” Lan Ha, global head of Euromonitor’s Economic Practice, also said. “The slowdown in inflation will give families some breathing space”, “it will help us maintain a certain level of consumption momentum by opening the door to consumption”. Pedro Palandrani, head of the GlobalX Research Center, explained it in numbers. He said: “Just a year ago, the base interest rate in the 13 major countries was 2.53% per annum and the inflation rate was 7.91%, but now the base interest rate has almost doubled to 4.24%, while the inflation rate fell. at 2.53%”.
Some say to watch out for the possibility that AI (artificial intelligence) could become a safety valve to support the economy. Insead’s Professor Antonio Patas said: “If AI-related technologies begin to appear in macroeconomic data, the economic outlook could change in a positive direction.”
◇Timing of interest rate cut, expected in the second half of the year
Investors’ attention is focused on when the Federal Reserve will start lowering interest rates. At the Federal Open Market Committee (FOMC) this month, the Federal Reserve suggested lowering its benchmark interest rate to 4.6% annually at the end of next year, nearly 1 percentage point lower than the current level. Regarding the timing of the interest rate cut, among the 24 experts, more people responded that it would happen in the second half of the year (14) than in the first half of next year (8). There were two experts who said after 2025 or didn’t answer.
Experts, who believe that an immediate reduction in interest rates in the first half of the year will be difficult, underlined the fact that the price burden has not been completely resolved. David Wong, senior investment strategist at AllianceBernstein, said: “It is premature to expect a sharp decline in interest rates,” and added: “We will start lowering interest rates in the third quarter of next year.” Professor Roach of Yale University said: “The fact that core inflation continues to hover around 4%, well above the Fed’s inflation target of 2%, demonstrates the need for the Fed to maintain rates high interest rates for longer than expected.” Lan Ha, Global Head of Economy Practice at Euromonitor, said: “If disinflation (easing inflation) continues and economic activity, including employment growth, weakens further, we will start to lower interest rates in the second half of the year”.
On the other hand, there are many opinions that the Federal Reserve will quickly begin to lower interest rates in the first half of the year. Longo, a professor at Rutgers University, said: “It is likely that the first cuts will be made in May, but if the economy weakens, they could be moved to March.” Russ Mold, chief investment officer at AJ Bell, predicted a cut in the first half of the year, saying: “The interest rate cut may be implemented not for a soft landing or price stability, but for unexpected reasons such as weakening growth or weakening bonds.” market concerns about high government bond yields.” Stephen Dover, head of the Franklin Templeton Research Center, had predicted an interest rate cut in the first half of the year, but said: “It is not easy for prices to return to the 2% level, so interest rates could continue at a high level.”
According to some analyses, the timing of the interest rate cut is closely linked to the calendar of the US presidential elections. Levinson, a former finance and economics editor at the Economist, said: “It is very likely that we will act in the first half of the year to avoid criticism that we are showing political bias as the US presidential election approaches.” Goodhart, professor emeritus at the London School of Economics, said: “I think they will cut interest rates in May,” and added: “The second half of the year is too close to the election.” In contrast, MIT professor Sheppey said that “(The Federal Reserve) will lower interest rates in the second half of the year to help the re-election of current President Joe Biden.”
Graphics = Yang Jin-kyung
◇Blue light on the US stock market
Although there is a cloud of uncertainty, the outlook for the global stock market, especially in the United States, next year is not bleak. Best of all, with the expected interest rate cut, there is not a small chance that stock prices will enjoy a tailwind. Among the 24 experts, 9 predicted a general upward trend, a much larger number than those who predicted a general downward trend (2). Of course, predicting the market is not easy. 7 experts believe that the trend will remain lateral and 6 avoided answering.
Ken Fisher, president of Fisher Investments, said: “There are many reasons why next year will be a bull market,” and added: “As the return to normal economic conditions from the coronavirus crisis continues next year, the macroeconomic just as the stock market will do well as spring arrives.” “Digital transformation will fundamentally change the way companies do business and deliver value to customers and shareholders,” said Dover director Franklin Templeton Research Center.
Michael Hartnett, chief investment strategist at Bank of America (BoA), said: “The S&P 500 Index will surpass its all-time high and cross the 5,000 mark in 2024.” He added: “The phase of uncertainty in the macro aspect has passed.” , and the market has already absorbed a significant amount of geopolitical shocks,” he said. Wong, senior investment strategist at Alliance Bernstein, said: “Corporate profits will recover and the concentration of stocks in a few stocks will ease.”
However, there are many cautious outlooks on the stock market. Kiuchi, chief economist at Nomura Research Institute, said: “If a full-blown recession occurs, we expect a stock market recession with stock prices down 20%. Mould, chief investment officer at AJ Bell, said: “The ‘Magnificent 7’ (referring to seven major Big Tech stocks such as Apple and Nvidia) have grown excessively and (investors) are moving away from these stocks and into smaller stocks. and mid-cap Stocks are good long-term, but they’re not good immediately (“It could make it difficult for the stock market to move up quickly (next year),” he said.
Experts who predicted a sideways move said: “The stock market was strong in 2023 and is expected to move sideways next year due to the economic slowdown” (Jim Rogers, president of Rogers Holdings) or “‘Random walk ‘ (stock price changes move independently regardless of past changes). “Don’t bet against (meaning random moves)” (Professor Icahn Green of UC Berkeley).
◇The AI explosion continues
When asked about the issues that will dominate the industry next year, most experts responded that the AI boom will continue. Professor Patas Insead said: “Like digitalisation (in the past), AI is central to many sectors, including banking and healthcare, and such important technology is not a fad.” Rogers Holdings Chairman Rogers also said, “Nothing will be more important than artificial intelligence in the next year or two.” ECIPE director Ericsson said: “Look at the biological sector” and added: “In detail, we can expect new developments in mRNA (messenger ribonucleic acid).” Hafele, Chief Investment Officer of UBS Global WM, asked us to pay attention to five keywords: deglobalization, demographics, digitalization, decarbonization and debt.
To make wise investments, many recommended carefully examining the changes surrounding the industry, including artificial intelligence. Pallandrani, Head of Global Chief Investment Officer Saira Malik Nuveen further said: “Industries related to data storage will grow under the influence of artificial intelligence.” Zandi, chief economist at Moody’s Analytics, said: “The rise in US stocks this year has been concentrated in a few technology companies” and “The majority of next year’s stock price rise will come from the remaining companies.” Hartnet, BoA’s chief investment strategist, said: “It is worth paying attention to the bio and renewable energy industries, which have suffered a punishment-like impact from high interest rates.”
There are many tips that you should check the trends of politics and international situations when investing. Chief Investment Officer Malik Nuveen said: “Even if dollar strength were to ease, emerging market equity markets will be impacted by geopolitical risks.” McIntosh, Nasdaq’s chief economist, said: “Elections lead to new policy proposals or changes in the tax system” and recommended that investors pay attention to several elections taking place next year.
