Global economy to perform better in 2024 than many expect: Goldman Sachs report

As the world steps into 2024, the global economic outlook appears cautiously optimistic, according to a recent report from Goldman Sachs Research.

Chief Economist Jan Hatzius, in the report titled “Macro Outlook 2024: The Hard Part Is Over,” predicts a worldwide GDP expansion of 2.6% on an annual average basis, surpassing the 2.1% consensus forecast by economists surveyed by Bloomberg.

This growth forecast is more optimistic than the consensus for eight of the world’s nine largest economies, including an expectation for U.S. growth to outshine its developed market peers.

GDP growth to sustain

The global economy, which performed better than expected in 2023, saw solid GDP growth translating into a robust labour market performance. Unemployment rates are now approximately 0.5 percentage points below pre-pandemic levels, even in key economies with low real GDP growth, like the Euro area.

One of the significant observations from Goldman Sachs Research is the cooling of inflation across G10 and emerging market economies, following a substantial surge in 2021-2022.

Hatzius notes that the supply and demand of goods have become more balanced, leading to a continuous decline in core goods inflation, which is expected to persist through most of 2024. This improvement is also visible in the labour market, where the workers’ gap is trending downward in a benign manner.

For 2024, Goldman Sachs Research forecasts a continuation of this year’s decline in inflation, with sequential core inflation expected to fall from 3% to an average of 2-2.5% across the G10 (excluding Japan). This would align with the inflation targets of most developed market central banks by the end of 2024.

What about recession fears?

In terms of recession, Goldman Sachs Research maintains an optimistic stance, with a relatively low probability of a U.S. recession at just 15% over the next 12 months. This optimism is based on several factors, including positive real disposable income growth amid lower inflation and strong labour markets.

However, the report acknowledges that rate hikes and fiscal policy will continue to impact growth across the G10 economies, though the worst of this drag has reportedly already occurred.

The report also highlights that weak industrial activity is poised for recovery as various headwinds, such as the European energy crisis and the inventory cycle, begin to fade. Furthermore, central banks are not expected to need a recession to bring inflation down, thereby avoiding one if possible.

Rate cuts unlikely

On the policy front, rate cuts in developed markets are unlikely before the second half of 2024, unless economic growth is weaker than anticipated. In emerging markets, policy cuts are expected sooner. Japan and China are noted as exceptions in their respective approaches to policy stimulus and economic challenges.

Overall, the report from Goldman Sachs Research presents an encouraging outlook for the global economy in 2024, with expectations of growth, declining inflation, and continued policy stimulus in certain key economies.

However, challenges such as the ongoing diversification of global value chains away from China and the need for Japan to exit its yield curve control policy are acknowledged as factors that could influence the trajectory of this growth.

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