Mass elections, central banks, AI and geopolitical balances are challenging economies and key economic indicators are about to be tested across the planet. 2024 has been characterized by analysts as a particularly tense year. More than 50 countries are heading for important elections.
One of the most important will be those in the US, while on the purely economic front, developed countries are waiting for positive news from the interest rate front. Especially in the US and Europe there is hope that the cost of borrowing will decline after the de-escalation of inflation. At the same time, countries’ simultaneous efforts to innovate and oversee artificial intelligence will accelerate the shift to the creation of geopolitical blocs.
The loans
Major central banks, notably the US Federal Reserve and the European Central Bank, will decide when and how much to change monetary policy after about a year and a half of interest rate hikes. The stringency of central banks has driven up the cost of servicing loans, such as those of governments, businesses and individuals.
Bloomberg also puts the parameter “war”. He speaks of an “explosion of violence between Israel and the Palestinians”, which is yet another “disaster for a world already tired of the bloody impasse that Russia’s invasion of Ukraine has reached”. He notes that the shocks of climate change are still spreading, with floods killing thousands in Libya, drought entering a third year in Africa and deadly wildfires ravaging Hawaii.
Europe
Politically, Europe is seeing the rise of right-wing populism flourishing in the US, with immigration and the environment among the flashpoints. International analysts are talking of better news as the US and China made pledges for more cooperation. Also the COP28 climate summit concluded with an agreement committing the world for the first time to move away from fossil fuels.
Economically, the eurozone is on course for modest growth in 2024, despite wages rising faster than inflation for the first time in three years. According to a Financial Times survey, nearly two-thirds of the 48 economists surveyed believed the single currency bloc was already in recession. It is usually defined as two consecutive quarters of GDP shrinking from the previous quarter.
Most respondents predicted that the current contraction would be shallow and short-lived, with mild positive growth returning in the first quarter of 2024. However, they estimated that overall 2024 would bring only weak growth and warned that high interest rates, the potential energy market turmoil and geopolitical instability could cause even more problems.
The development
On average, economists polled by the FT predicted the eurozone economy would grow by just over 0.6% in 2024. They were more pessimistic than the European Central Bank and the IMF, which have predicted that the bloc’s economy will grow by 0.8% and 1.2% respectively. Allianz makes special reference to the phenomenon of populism. As it states, “currently more than a quarter of the world’s nations are under populist leadership, a style of government associated with 10% lower GDP per capita over a 15-year period, compared to their non-populist counterparts.”
In Europe the situation is characterized as precarious. “Issues of inflation and immigration have fueled right-wing populism, raising concerns about the composition of the upcoming European Parliament. There is fear that it may lean towards anti-environmental and anti-immigration positions, potentially blocking significant progress in areas such as institutional reform and energy security.
The banks
With the full impact of recent monetary tightening still being felt, Fitch Ratings forecasts that global growth is expected to fall sharply to 2.1% in 2024. The Fed is expected to keep interest rates on hold until July and then cut by 100 basis points by the end of the year, to 4.75%, it noted.
The ECB is expected to start easing in April, cutting interest rates by 75 basis points by the end of the year, setting the main refinancing rate at 3.75%. Instead, the Bank of Japan is expected to raise its key interest rate next year.
The innovation of artificial intelligence
The technology factor also enters this economic political cocktail. EY says in its study that for companies and economies to thrive in this new era, they need to adapt their business models, strategies, supply chains and sustainability plans.
On AI, he says governments will struggle to regulate artificial intelligence to reduce the potential for socio-political risks. But policymakers will simultaneously try to promote domestic AI innovation to compete in the geopolitical arena. As a result, artificial intelligence will become a central dynamic in US-China relations.
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