2024 Economic Outlook: Surpassing Expectations and Embracing AI for Growth
In 2023, the global economy exceeded all expected forecasts, setting up the stage for a promising economic revival in 2024. There's a bit of uncertainty, of course, but the latest data and ongoing trends show a comforting picture. It seems the hard times might have ended, making 2024 well-primed for some great economic improvement.
According to the above data, global GDP growth in 2023 was higher than expected, reaching 2.7 %, one percentage point higher than the Bloomberg consensus forecast a year ago. This provides a solid foundation for a better economy around the world. The US, in particular, grew by 2.4%, beating the 2 percentage points forecast a year ago. While other regions have relatively small surprises, GDP growth in 88% of the economies covered. Along with the economic growth, the job market is also showing positive. Across all economies with high-quality global labour market data, unemployment continued to fall in 2022-2023 and is now roughly below prepandemic levels. This suggests that economic growth strongly supports the job market and provides a positive outlook for 2024.
In analyzing the current economic landscape, it is important to consider another significant factor: the development of deflation. As we have observed, while inflation rates have surged during the period of 2021-2022, the core consumer price index (CPI) inflation rate has experienced a notable decrease from 6% to 3% worldwide since the conclusion of 2022. This decline in inflation is a prevailing trend witnessed in both G10 countries and certain emerging markets, scoring the effectiveness of central banks in fostering a deflationary environment through their proactive adjustments in monetary policy. The liberate measures taken by these central banks have proven successful in curbing the upward trajectory of inflation and establishing conditions conducive to the prevalence of deflation across economies. The occurrence of deflation should be approached with careful scrutiny and consideration. Deflation is characterised by a general decline in prices, which may seem beneficial to consumers at first glance. However, it can have far-reaching implications for an economy's overall health and stability. It can dampen economic growth, increase the burden of debt, and complicate efforts to stimulate spending and investment.
There are also some noteworthy factors in the course of falling inflation. First, while the improvement in supply and demand balance in the commodity sector has been completed, the impact of core commodity deflation is still ongoing and will continue until much of 2024. Second, there is considerable room for housing inflation to fall, particularly in the eurozone and the UK, which exclude owner-ownership from key inflation measures.
Most importantly, the balance between supply and demand in the labour market continues to improve. The staffing gap based on existing data (calculated by job vacancies minus unemployed workers) is declining everywhere. Although theoretically this improvement may be achieved through either a decrease in job openings or an increase in unemployment, in practice, the adjustment occurs almost entirely in a benign way. The decline in job vacancies was not accompanied by increased unemployment, or, in more professional terms, the "Beveridge curve" has largely returned to pre-outbreak levels. This suggests that the job market correction is mostly done in benign situations, while vacancy rates remain high relative to the level that economic fundamentals suggest, so there is room for further normalization.
In 2024, AI will become a turning point in promoting global economic growth. According to Goldman Sachs research, the widespread use of AI will begin to have a measurable impact on the U.S. GDP this year. AI is expected to boost US GDP by 4.0 percentage points by 2027, according to their report. Meanwhile, the average growth rate of other developed emerging markets was 3.0 percentage points, while that of developed emerging markets was 2.2034 percentage points. The prediction is based on AI to eventually automate about 25% of labour tasks in advanced economies and 10-20% of jobs in emerging economies.
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Economists Joseph Briggs and De Vishkodenani suggested in their report that automation could offer significant savings in labour costs while freeing up worker time, which could then be allocated to new tasks. The team of equity analysts at Goldman Sachs Research also foresee that recent progress in AI technology may spark new growth in productivity, particularly in sectors like healthcare and drug discovery, cybersecurity, design, and software development. These industries are perceived as ripe for efficiency improvements driven by AI.
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Goldman Sachs economists have put out an enticing scenario. They think if AI is broadly embraced within the next year, it could bolster annual U.S. productivity growth by a hefty 5.10 percentage points. The data hints at AI significantly revving up productivity levels in the near future, which should give our economy a nice push forward.
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However, it is important to note that although AI is recognized as a driver of economic growth, the schedule adopted, and some potential risk factors, such as regulatory barriers, will still affect the way and extent to which these economic impacts are realized. So, while forecasts suggest that AI will be a key factor in global economic growth in 2024, achieving this turning point still needs to be carefully assessed and monitored.