Global Economic Performance in 2023: Exceeding Projections

The global economy outperformed expectations in 2023, with strong GDP growth and resilient labor markets defying earlier forecasts. Goldman Sachs Research highlights that the unemployment rate in examined economies is currently 0.5 percentage points lower than pre-pandemic levels, showcasing the strength of the recovery. Even regions with subdued real GDP growth, like the Euro area, experienced significant improvements.

This video explores the reasons why the global economy and markets may continue to thrive in 2024, delving into the intricate dynamics at play.

Inflation Trends in 2024: A Positive Outlook

A significant aspect of Goldman Sachs' forecast is the anticipated further decline in inflation throughout 2024. Improvements in the supply-demand dynamics for goods are aiding disinflation, and a notable decrease in shelter inflation is expected. The balance between labor supply and demand is also strengthening globally, with a downward trend in the jobs-workers gap. Goldman Sachs Research forecasts that core inflation will average between 2% and 2.5% across G10 economies (excluding Japan) by the end of 2024.

Avoiding Recession in Key Economies

Goldman Sachs Research remains hopeful about the ability of major economies to sidestep a recession in 2024. The likelihood of a U.S. recession is projected at just 15% in the coming year. This optimistic outlook is underpinned by four primary factors:

1. Encouraging Real Disposable Income Growth: An expected rise in real income will bolster consumption and GDP growth, particularly in the U.S., Euro area, and the UK, with significant acceleration anticipated by the end of 2024.
2. Impact of Rate Hikes and Fiscal Policy: Although rate hikes and fiscal policies are expected to impact G10 economies, the most severe effects are thought to have already been felt, resulting in a minimal drag on growth in 2024.
3. Revival in Industrial Activity: The sluggish industrial activity in 2023 can be attributed to various factors, including a shift towards services, the European energy crisis, and adjustments in the inventory cycle. Goldman Sachs Research predicts a rebound in manufacturing as these challenges diminish.
4. Central Banks' Focus on Inflation Control: A key reason for optimism is that major central banks are likely to prioritize avoiding a recession to manage inflation, emphasizing the necessity of sustaining economic growth.

Regional Dynamics: Japan and China

Japan is notable for its targeted inflation increase, indicating a shift towards a favorable cycle between wages and prices. The Bank of Japan is expected to move away from yield curve control in 2024. Conversely, China faces hurdles such as a downturn in the property market and ongoing demographic challenges, prompting a need to reassess its growth strategy.

In conclusion, Goldman Sachs Research's outlook for 2024 paints a resilient picture for the global economy. While challenges remain, the combination of positive income growth, managed inflation, and strategic policy initiatives positions the world for sustained economic growth in the forthcoming year.

This video features Goldman Sachs' Jan Hatzius discussing the expected consecutive interest rate cuts throughout the remainder of 2024 and their implications.

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