Reasons to be excited about the global economy – 12/30/2023 – Market

First, the international economy has shown remarkable resilience. Since 2020, it has faced a pandemic, war in Europe and chaos in supply chains — which triggered the biggest cycle of inflation and rising interest rates in decades.

However, economies adapted better than expected, and this has continued into 2023.

In the third quarter, global GDP was more than 9% higher than pre-pandemic levels, according to Fitch Ratings.

Companies restructured their logistics, Europe moved further away from Russian gas, and higher interest rates did not lead to a rise in unemployment. This durability provides a solid foundation for the coming year.

Second, the scourge of inflation is rapidly disappearing. Global price growth ended last year at 8.9% and is forecast to fall to 5.1% by the end of 2024.

Food price inflation — from wheat to cooking oil — has plummeted and rising energy prices are reversing. Pandemic-era supply chain shocks have also eased.

Services inflation remains persistent, but this is due to strong labor markets and rapid wage growth.

Third, fears of a “table-mountain” monetary policy cycle — in which interest rates would remain at their peak for longer — are already easing.

Major central banks may now cut rates earlier in 2024 than previously anticipated. This would be a relief for many families and businesses. And although three U.S. regional banks and Credit Suisse struggled in March, the fallout from rising rates was contained.

In fact, this rates cycle has usefully exposed weaknesses, from zombie companies to thinly capitalized banks.

Financial markets have prospered. Wall Street’s main indices reached or surpassed all-time highs this month.

Even titles ended the year strong. And the chance of a soft landing for the US economy in 2024 — where the Fed controls inflation without causing a recession — has increased.

Not all economies are expected to perform well. Economic activity has been declining in the United Kingdom and Germany. China’s post-pandemic recovery has also been disappointing. But others are showing promise.

India, Mexico and Vietnam are benefiting from changes in trade patterns, and investors are eager to increase their exposure to them in the coming year. Prudent economic management has also regained prominence in some places.

Greece’s public debt has returned to investment grade status after a decade-long break. In Türkiye and Argentina, some unconventional approaches have also been curbed.

Central banks in many developing countries have also been on the front line in controlling inflation.

Ultimately, this hasn’t been a sobering year for technology, as some had hoped. ChatGPT has become the fastest-growing app of all time, and the excitement around generative AI has helped drive the stock market.

Enterprise adoption of generative AI in 2024 could help drive productivity growth, which has shown signs of taking off in the US this year. Other innovations this year also have potential.

Regulatory approval of weight-loss drugs — like Novo Nordisk’s Wegovy — could help reduce healthcare burdens. And Toyota’s progress in solid-state batteries could be a game-changer for the electric vehicle industry.

Having perspective is no excuse for complacency. The global economy faces several battles in 2024, from crucial elections to rising sovereign debt.

But after this year’s show of resilience, there is every chance that the reality next year will also be better than expected.