As we approach H2 of the financial year, it’s time to look both ahead to the future, and behind, to the past, in a bid to understand what the remainder of the year could have in store for the markets and the world’s major economies.
When we first entered 2024, we entered with a sense of cautious optimism in terms of not only growth in many of the world’s major economies, but also in terms of avoiding a recession.
Ever since the global pandemic in 2020, it’s safe to say that the world’s major economies have seen some decidedly shaky periods. There was growth, but what followed was, largely, a sustained period of decline. As a result, inflation rose, as did interest rates. That, coupled with surging energy prices, global conflict, political uncertainty, worrying employment figures, and various other factors resulted in an increased threat of recession.
In January at the start of the year, business experts and market analysts predicted muted, yet still respectable growth. Well, six months on, what are the experts saying, and more importantly, what are the numbers and statistics saying? Will global economies still grow, or is the threat of recession looking more likely?
What is a Recession?
Whenever the threat of a recession looms, markets, banks, and business leaders rarely react positively.
In order to understand why a recession could spell economic disaster, however, we first need to understand precisely what a recession is. Put simply, a recession is a prolonged spell of downturn in economic activity.
The basic rule of thumb for diagnosing a recession is two consecutive quarters of negative GDP (Gross Domestic Product) growth. As is often the way in economics, though, that isn’t always the case and there are also more complex and sophisticated formulas out there which are used for determining whether a nation’s economy, or indeed, the world’s economies, are in recession.
We won’t go into great detail today as that would take too long, but a few other things used to determine a recession include:
- Industrial production
- Retail sales
- Nonfarm payrolls
During a recession, unemployment rates nearly always rise, businesses lose value as stock markets tend to fall and enter bear market territory, people have less disposable income, and businesses see less profit, and run the risk of going under completely.
Again, there is much more to a recession than the above, but those are the basics, and they certainly help us to understand why, from an economic standpoint, recessions are viewed as being so detrimental to economies.
Predicted Growth
In January 2024, the world’s global economy was predicted to grow by a modest, yet still respectable, 2.4%. Six months on, is global economic growth still on the cards, or is the threat of recession increasingly likely?
Well, the economic outlook is thankfully looking a little brighter, with growth in 2024 still predicted. In fact, growth figures have now been revised and have increased from the predicted 2.4% growth at the start of the year, to 2.7%.
Despite the fact that we’ve seen some of the tightest, most restrictive monetary tightening policies implemented in decades, the threat of recession has declined, though many countries, including the US, are certainly not out of the woods yet.
Even LDCs (least developed countries) are predicted to increase in comparison to the previous year, up by 0.6% from 4.2% in 2023 to 4.8% in 2024.
Global Sentiment Holding Firm
Despite the fact that there is an increasing risk of recession in many of the world’s major economies, (particularly the U.S) experts and analysts are still cautiously optimistic that 2024 will be a year of growth, rather than recession. Yes, that growth will likely be modest, but it is still believed to be growth nonetheless.
Earlier in the year, revised figures for the UK revealed that the UK economy actually slipped into recession at the end of 2023. Since the start of the year however, the UK economy has enjoyed steady growth as have the UK stock markets.
Despite inflation still being higher than wanted, inflation across the globe appears to be on the decline, which means that interest rate cuts finally look likely. When rate cuts are finally implemented, businesses and a number of economic sectors should benefit.
LLDCs (land locked developing countries) are expected to grow by 4.7% which is largely unchanged from 2023. The main reason for this stagnation is believed to be geopolitical uncertainty and tensions, due to the fact that they are reliant on neighboring nations in terms of trade routes. Needless to say, LLDCs in eastern Europe are particularly feeling the economic strain due to the ongoing conflict between Russia and Ukraine.
Global trade, which suffered very noticeably since 2020, is also predicted to recover in 2024. This is largely due to the destocking of inventories which mounted up during supply-chain disruptions between 2021 and 2022.
China, whose economy has itself been cause for concern recently, saw foreign trade growth increase faster than predicted in 2024. This was largely driven by exports to emerging markets such as Brazil, the Russian Federation, and India.
Recession Still a Possibility
Despite the fact that global economies are looking healthier than they have in years, and with inflation on the fall and interest rates predicted to finally be cut after previously being hiked, the threat of a recession still looms.
Unemployment figures, for example, are certainly concerning. The U.S in particular, has seen an increase in the number of people out of work, on several consecutive months. April’s unemployment figure stood at 3.9%, increasing to 4% in May, and again increasing to 4.1% in June. Obviously, the more people out of work, the more the economy will suffer.
This, combined with geopolitical instability in Europe and the Middle East, weak demand in the Asia-Pacific regions, and concerns that sluggish inflation data may cause the FED to hold off on cutting interest rates (other monetary policy makers in other countries tend to follow suit) has led to an increasing risk of recession in the second half of the year.
Based upon current data and stats however, experts are cautiously optimistic that a recession in 2024 is unlikely and that 2024 will instead be a year of growth.
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