Several weeks into 2024, the consensus forecast for the global economy remains cautiously optimistic, with most central banks and analysts projecting either a soft landing or potentially no landing at all. Even my colleague Nouriel Roubini, famous for his bearish tilt, regards the worst-case scenarios as the least likely to materialize.
The CEOs and policymakers I spoke to during last month’s World Economic Forum (WEF) in Davos echoed this sentiment. The fact that the global economy did not slip into recession in 2023, despite the sharp rise in interest rates, left many experts upbeat about the outlook for 2024. When asked to explain their optimism, they either cited the U.S. economy’s better-than-expected performance or predicted that artificial intelligence would catalyze a much-hoped-for productivity surge. As one finance minister remarked, “If you are not naturally optimistic, you should not be a finance minister.”
The world’s economists appear to share this outlook. The WEF’s Chief Economists Outlook for January 2024 found that while a majority of respondents foresaw a mild global downturn in 2024, most were not overly concerned and viewed the expected slowdown as a healthy correction to the inflationary pressures caused by excessive demand.
Even the disruption to global trade caused by Yemeni Houthi attacks against commercial ships in the Red Sea and the ongoing wars in Ukraine and Gaza have not dampened the jubilant mood of analysts and business leaders. The U.S. stock market is at record levels, and even the normally conservative International Monetary Fund revised its growth forecasts upward, with the latest World Economic Outlook describing the risks to global growth as “broadly balanced.” This characterization marks a significant departure from the cautious tone the IMF typically uses to discourage finance ministers from engaging in unsustainable spending sprees.
In a crucial election year in which voters in dozens of countries — representing half the world’s population — will head to the polls, government spending is already expected to surge. In macroeconomics, this phenomenon is known as “political budget cycles”: Incumbent politicians want to stimulate the economy to improve their chances of being re-elected, so they increase public spending and run larger deficits.
“Economic slowdown and a collapsing real-estate sector could bring China to the brink of a Japan-style ‘lost decade.’”
Despite the relatively buoyant consensus, recent developments suggest that the risks to global growth are still tilted to the downside. For starters, I am deeply skeptical of the Chinese government’s announcement that its economy grew by 5.2% in 2023.
GDP growth figures have long been a politically charged issue in China, particularly over the past year, as President Xi Jinping consolidated his one-man rule by sacking numerous top officials, includi