Amidst the resilience displayed by the US and global economy in the past year, 2024 might bring forth significant challenges, cautioning economists who were outsmarted by the 2023 economic landscape. The potential strains of ongoing wars, persistent inflation, and high interest rates loom over GDP growth rates.
Economists, influenced by the unpredictability of 2023, are approaching 2024 with circumspection. While some predict a consensus on a growth slowdown or even a mild recession, others boldly suggest the economy might exceed expectations, advocating for earlier and more frequent interest rate cuts.
Kevin Kliesen, a business economist at the Federal Reserve Bank of St. Louis, forecasts a modest deterioration in economic conditions for 2024. Real GDP growth and job gains are expected to remain positive, with inflation projected to decline to approximately 2.5%.
Forecasts for 2024, particularly for the US economy, hinge on a shift in the US Federal Reserve’s policy. The central bank’s indication in December of halting interest rate hikes and potentially reducing rates diverges from the rapid rise observed over the past 18 months.
The surge in Inflation witnessed at the start of 2022 is expected to wane as 2024 progresses, although economists do not foresee a return to the ultra-low inflation and interest rates of the pre-pandemic era. Andrew Patterson, senior international economist at Vanguard, asserts that interest rates are likely to remain above the inflation rate, signaling the end of the era of ultra-low rates.
With moderation in inflation anticipated, money savers may reap rewards, and long-term investing could regain favor after years of momentum stock-picking. This shift reflects an era of sound money, where savers earn positive real returns, while borrowers carefully consider capital costs.
Key Changes for 2024:
Housing and Demographics: Housing mortgage rates are expected to settle around 6%, providing a positive outlook for the housing market. Demographic changes, driven by baby boomers holding homes with low mortgage rates and older millennials entering key career phases, will influence demand.
Supply Chains and Labor Market: Supply chains, battered during the pandemic, are mostly back to normal, evidenced by car dealers offering incentives. The labor market is predicted to cool down after a robust 2023, with monthly job gains forecast to reach around 100,000.
Productivity and Technology: Productivity has surged, with companies investing in new manufacturing capacity and technologies like robotics and artificial intelligence (AI). While AI has driven gains in technology stocks, caution is advised, and its impact should not be overstated.
Geopolitical Risks:
The geopolitical arena remains volatile, with conflicts in the Middle East and Europe and simmering tensions in Asia posing threats to global peace. Recent drone attacks in strategic regions highlight the potential for an energy shock or broader regional conflict. The slowing economy in China, the second-largest globally, adds a risk factor to overall global growth.
While 2024 holds moderate positive forecasts, risks persist. The unpredictability that defined 2023 leaves the question open: can the US economy surprise once again? As the world navigates through challenges, opportunities, and shifting economic dynamics, adapting to uncertainties remains paramount.