As hard to believe as it may be, after welcoming in yet another New Year, we now gear up to face the year 2024, and all the economic challenges it looks likely to bring.
2024 looks set to be a year of adjustment, and cautious optimism. With the prospect of inflation finally falling, and rate cuts to follow, business analysts are cautiously optimistic about what lays ahead. Before we look to the future, however, we must first re-visit the past.
2023 was a year of transition. We saw inflation begin at record highs, before gradually declining. We saw the United States’ Federal Reserve (FED) initiate its 11th, and hopefully final, interest rate hike in July 2023, and we saw some of the world’s major economies avoid recession.
Some countries, however, enjoyed less success. But who were the big hitters in 2023, and which economies fell short? Here is the year 2023 in review, as we look at an overview of the performance of the world’s major economies.
United States
Almost one year ago to the day, the United States entered the year with elevated levels of inflation, the threat of yet more interest rate hikes from the FED, and the risk of an imminent recession.
In 2022, stock markets in the US saw some of their biggest losses since the Covid-19 pandemic, with numerous indexes down considerably in a seemingly never-ending bear run that gave investors worldwide a real headache. The S&P 500 for example, had dropped by 19%, with the NASDAQ Composite down a staggering 33.1%, meaning tech stocks took a real hammering.
As the US entered 2023, economic forecasts were “subdued” at best, and at worst, looked abysmal. Economic forecasters and business analysts predicted more falls in growth, a stagnated job market, more interest rate hikes, and for the US to slip into recession. What happened however, was very different.
Data collected at the end of 2023 painted a much brighter picture. Inflation dropped from 8% to 4.1%, showing that the Fed’s plan was apparently working. As well as that, unemployment levels were low at just 3.7% in December, and job growth was looking decidedly healthy.
Job markets held strong, GDP rose by 2.5% and stock markets enjoyed a surprisingly bullish run, with the Morningstar US Market Index up by an impressive 26.4%.
The only potential dark cloud looming ominously in the distance is the fact that business analysts and experts are concerned that the FED may wait too long before it begins to ease its monetary constraints. Higher interest rates, for example, have harmed a number of sectors of the economy, especially those sensitive to interest rates, such as the property market. Buyers, lenders, and construction companies are feeling the pinch. We are, therefore, hopeful that, assuming inflation continues to fall, the FED will begin to cut rates.
United Kingdom
Whereas the United States economy enjoyed a somewhat surprisingly successful 2023, the economy in the UK was a great deal more subdued.
In the UK, the Bank of England followed the same policy as the USA, and increased interest rates in an effort to curb inflation. August 2023 was the last time the BoE hiked rates, increasing them to 5.25%. This is in stark contrast to 2021, where they were just 0.1%. For borrowers, this spelled trouble.
Inflation for the year stood at 5.1%, far above the Bank of England’s target of 2%. Things with GDP were also nothing to shout home about, as GDP in the UK grew by just 0.1%.
UK stock markets, while showing an improvement in growth compared with the dire bear run of 2022, could hardly be described as bullish. The FTSE 100 for example, rose by just 3.8%, lagging significantly behind many of its European peers.
As for unemployment, figures show that UK unemployment rates stood at 4.2%, with 1.44 million people of working age, unemployed. While this figure was slightly better than the forecasts of 4.3%, it’s certainly nothing to write home about.
For 2024, experts are concerned that the UK may be teetering on the brink of recession with such stagnant growth. As is the case Stateside, a great deal of the UK’s growth will be dependent on inflation continuing to fall, and the BoE cutting interest rates.
China
Coming into the start of 2023, there were also concerns about China’s economy.
For more than four centuries now, China’s economy has enjoyed an average GDP growth of roughly 9% each year. The economy is one of the largest in the world, second only to the USA. Ever since the global pandemic, however, it’s safe to say that its economy has certainly taken a hit.
In 2023, following sluggish post-pandemic growth, China’s GDP figure stood at just 5.2%. While this is still a modest figure of growth, it’s well below the country’s average year-on-year GDP growth figure of 9%.
When it came to inflation, though, things were much different. China is a country that is well known for controlling inflation, so in 2022 when it peaked at 2.8% there were concerns. 2.8% may seem like a low figure, but to China’s economy, it was very concerning. The good news is that the inflation figure for 2023 was much lower, coming in at just 0.2%.
Eurozone
In Europe, growth could also best be described as ‘stagnant’, with Eurozone countries recording GDP growth of just 0.4% for the entire year. This figure is down considerably compared to the previous year, which stood at 3.4%. Figures also show that GDP contracted slightly in the third quarter of the year, before remaining flat for the final quarter.
While inflation looked to be fairly low at just 2.9%, there are slight concerns for 2024 as the figure last month in December, is up from 2.4% for the previous month. This is something that banking officials and government bodies will be watching closely, as rising inflation could result in a delay to interest rate cuts, or worse still, markets being spooked by the prospect of another hike.