Goldman Sachs says world economy to perform better than expected in 2024

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.

In order to control rising inflation, the US Federal Reserve Aggressive interest rate hike campaign In March 2022, inflation rose to its highest level in 40 years. 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.

Global production has been weak through most of this year. Indicators of global manufacturing activity from S&P Global Entered at 49.1 During September. A reading of less than 50 indicates a reduction in activity. moreover, China Caixin/S&P Global Manufacturing PMI In October, it fell to 49.5 from 50.6 in September, the first negative figure since July.

Goldman economists, led by Goldman Chief Economist Jan Hadzius, said that, among other things, “manufacturing activity will decline as spending patterns normalize, gas-intensive European production runs out, and inventories-to-GDP ratios stabilize. “We should see 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 U.S. will slow from its strong pace of 4% in 2023, but argue that it will 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 continue to weigh on growth across the G10, Hadzius believes the worst of the drag is now 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.