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Navigating the global disorder

Global Economics Quarterly

  • Ongoing geopolitical shifts and countless looming elections…
  • …amid an already very complicated global economic picture…
  • …mean more policy quandaries, even as inflation slows

One forecast that can be made with confidence is that 2024 will be an eventful year, even as 2023 ends with some unequivocally good economic news. Over the past few months, global inflation has slowed by more than expected, and there are signs that labour markets are cooling. Major central banks are relieved their most aggressive tightening in four decades now appears to be over.

But their task of ensuring that inflation remains on a steady trajectory back towards target is not set to get any easier, not least because we are entering a record year for the sheer number of voters heading to the polls in more than 70 economies worldwide.

The outcome of elections will impact on fiscal policies, green policies, immigration, and trade – and potentially on geopolitics, too. This adds further uncertainty to an already complex global picture, with new risks recently coming to the fore including the conflict in the Middle East, and uncertainty regarding future US and EU funding for Ukraine. We are in an era of global disorder.

We are in an era of global disorder

The economic picture, too, is complicated. We are seeing some impact from high interest rates, but with some companies and households severely affected, and others less so. Labour markets are behaving differently now too. Despite still high inflation, it has at least slowed a lot so real wage growth is now positive. And on the trade side, the outlook is uncertain: there are some signs of green shoots, but it remains to be seen whether this is the start of a sustainable recovery.

Against this backdrop, central banks face a quandary: when should they cut interest rates, and by how much? Too soon might mean they have to reverse course. But too late would also be an error, potentially causing a very hard economic landing, and potentially persistent inflation undershoots over the medium term.

Several policymakers have said that the balance of growth and inflation risks has shifted in recent months, and we agree. But inflation is still too high, and we fear it could be a little stickier in major economies over the coming months than markets anticipating very quick rate cuts currently seem to expect.

Based on our forecasts for the key criteria central banks will be watching, we now think the US Federal Reserve and the European Central Bank could start cutting rates in June 2024, followed by the Bank of England in August.

Global GDP growth in 2024, HSBC forecast
Global inflation in 2024, HSBC forecast

When it comes to global inflation, our expectation of 5.8% in 2024 after 6.4% in 2023 is little changed compared with three months ago. We have lowered our forecasts a touch for the US and the eurozone but raised them for Japan and some parts of Latin America.

And on growth, we continue to look for a marked slowdown, with activity weakening to varying degrees across countries in 2024. With many unpredictable events in the year ahead, there are many risks on both sides. We do not envisage a global or US recession, and have even edged up our 2024 global growth forecasts from 2.3% to 2.4%, largely driven by small upgrades to the US, China and India. We see a subdued 0.6% across Western Europe, and look for some strengthening in ASEAN.

Overall, we are set for a very eventful 2024 with some difficult decisions for electors, governments, and, of course, central banks.

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