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Goldman Sachs expects the global economy to outperform expectations in 2024, driven by strong income growth and confidence that the worst of interest rate hikes is over.
The investment bank expects the global economy to expand at an average annual rate of 2.6% next year, higher than the 2.1% consensus estimate of economists surveyed by Bloomberg. The U.S. will once again outpace other developed markets, with growth expected to be an estimated 2.1%, Goldman said.
Goldman also believes that most of the effects of tight monetary and fiscal policy are over.
With inflation rising to a 40-year high, the US Federal Reserve began an aggressive interest rate hike campaign in March 2022 to curb rising inflation. Last Thursday, Fed Chairman Jerome Powell said he was “not confident” the Fed had done enough to fight inflation and suggested further rate hikes may be necessary.
Goldman said policymakers in developed countries are unlikely to cut interest rates before the second half of 2024 unless economic growth is weaker than expected.
The central bank said inflation also remained weak across the G10 and emerging market economies and was expected to ease further.
“Japanese economists expect this year's decline in inflation to continue into 2024. Going forward, core inflation will rise from the current 3% to an average of 2% to 2.5% across the G10 (excluding Japan). is expected to decline,” the report said.
The investment bank also expects headwinds to ease this year and global factory activity to recover from the recent downturn. Goldman said global manufacturing activity was weighed down by a weaker-than-expected recovery in Chinese manufacturing, the European energy crisis and an inventory cycle that needed to correct last year's overconstruction.
We continue to view recession risks as limited and reaffirm the 15% probability of a U.S. recession.
Jan Hadzius
Chief Economist at Goldman Sachs
Global production has been weak through most of this year. S&P Global's index of global manufacturing activity in September was 49.1. A reading of less than 50 indicates a reduction in activity. Furthermore, China's Caixin/S&P Global Manufacturing PMI was 49.5 in October, down from 50.6 in September and the first negative turn since July.
Goldman economists, led by Goldman Chief Economist Jan Hadzius, expect manufacturing activity to decline, especially as “spending patterns normalize, gas-intensive European production finds a trough, and inventories-to-GDP ratios stabilize.” said there should be some recovery in 2024 from the sluggish pace in 2023.
Higher underlying earnings also contributed to Goldman's positive growth outlook.
“Our economists have a positive outlook for real disposable income growth as headline inflation declines significantly and the labor market remains strong,” Goldman said in a release based on the report. Stated. They hold the view that real income growth in the United States will slow from a strong pace of 4% in 2023, but still support consumption and GDP growth of at least 2%.
“We continue to view recession risks as limited and reaffirm the 15% probability of a recession in the U.S.,” Hadsius said in an outlook report, citing growth in real disposable income as a contributing factor. continued.
In September, the bank lowered its forecast for a U.S. recession to 15% from 20%, citing slowing inflation and a resilient labor market.
Although interest rate hikes and fiscal policy will still weigh on growth across the G10, Hadzius believes the worst of the drag is over.
“As the gas shock associated with Russia's invasion of Ukraine fades, real income growth in the euro area and the UK is expected to accelerate significantly, reaching around 2% by the end of 2024,” the economists said.
