As dire economic predictions for 2023 did not materialise, pundits began 2024 far more optimistically. But policy ghosts from the last half-century will likely undermine such wishful thinking.
Optimistic forecasts
As New Year celebrations of different cultures decline with the coming of spring in the northern hemisphere, it is useful to review and reconsider various end-of-2023 and early-2024 economic prognoses against what happened in the previous year.
Macro-financial economist Nouriel Roubini agrees that worst-case scenarios – including a “severe recession, leading to a credit and debt crisis”, stagflation, and other financial crises – are unlikely for now.
But he acknowledges this can easily be “derailed by any number of factors, not least geopolitics”. Such developments – especially the US-China conflict – are likely to undermine growth.
Former Goldman Sachs Asset Management chair Lord Jim O’Neill warns against overconfidence in such forecasts. He warns of the many “known unknowns”, particularly geopolitical ones, besides “unknown unknowns lurking on the horizon”.
For former Wall Street pundit Mohamed El-Erian, “the chances of robust global growth in 2024 appear tenuous”. He dismisses “optimistic sentiment” based on “central banks aggressively cutting interest rates amid the softest of all soft landings for the US economy”.
After all, the European Central Bank has emphasised it will not follow the US Fed in ending interest rate hikes. Even the International Monetary Fund (IMF) has become an inflation hawk, accelerating world economic contraction.
El-Erian agrees central banks alone “may not be enough to generate the necessary growth momentum to withstand the headwinds facing the global economy”. Meanwhile, fiscal austerity policy pressures limit the means for counter-cyclical policies.
World Bank Chief Economist and Senior Vice-President Indermit Gill and Ayhan Kose agree on the risks of tepid world growth for developing economies. However, their main recommendation is to pursue the same policies that have led to the current predicament.
The duo urge developing countries to pursue policies “generating a broadly beneficial investment boom”, including contractionary fiscal austerity! Governments are told to “avoid the kinds of fiscal policies that often derail economic progress”, such as counter-cyclical efforts.
