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Goldman Sachs predicts a strong acceleration of the global economy in 2024: the 4 reasons

This forecast, explained by the New York firm, is based on the forecast of a strong revenue growth in a context of cooling of inflation and solidity of the labor marketas well as in his forecast that Rate increases have already had their greatest impact on growth of GDP.

They also contemplate some recovery in the manufacturing sector. “This is an important insurance policy against a recession,” notes Goldman Sachs Research chief economist Jan Hatzius in the report ‘Macro Outlook 2024: The Hard Part Is Over’.

Thus, the American investment bank global GDP is expected to grow by 2.6% on average annually next year compared to the 2.1% expected by the consensus of economists surveyed by Bloomberg. In fact, Goldman Sachs Research’s forecasts for GDP growth in 2024 are more optimistic than consensus for eight of the world’s nine largest economies. Furthermore, they expect that the growth of The US once again surpasses that of its counterparts in developed markets.

The economists of the New York firm They had already been more optimistic than the consensus for 2023, although the final results have even exceeded their own expectations in areas with low real GDP growth such as the eurozone. “Strong GDP growth has translated into more than solid labor market outcomes. The unemployment rate in all economies covered by our analysts (and with high-quality labor market data) is now around 0 .5 percentage points below its pre-pandemic level,” they highlight.

Goldman Sachs: the 4 reasons to be optimistic

In this sense, Goldman Sachs believes that there are four arguments that support this optimistic thesis.

1. Real income growth

All this occurs in a context of “much lower” general inflation and labor markets “still strong.”

Although these strategists predict that US real income growth will slow from the strong pace of 2023, they believe it will still be enough to parto sustain consumption and GDP growth of at least 2%. Meanwhile, it is expected that both the eurozone and the United Kingdom experience a significant acceleration of real income growth, to around 2% by the end of 2024, as the gas crisis following Russia’s invasion of Ukraine fades.

2. The worst of the tightening of monetary policy is over

“We expect the tightening of financial conditions to have a smaller impact in 2024 than in 2023, even taking into account the recent increase in long-term interest rates,” Hatzius noted.

Industrial activity has been weak amid a rebalancing of spending toward services rather than goods, the European energy crisis, an inventory cycle that had to correct excess construction in 2022, and a weaker-than-expected rebound. in Chinese manufacturing. Most of these adverse factors are expected to disappear this year and the manufacturing sector recovers towards long-term trend levels.

On the other hand, the “newest reason” to be optimistic about GDP growth is that central banks They don’t need a recession to reduce inflation “and therefore they will endeavor to avoid it.”

“Our economists’ analysis of previous hiking cycles shows that major central banks are twice as likely to cut rates when there is a risk to growth once inflation has normalized below 3% (in compared to when inflation is higher than 5%)”, they add.

3. Inflation: what will happen in the US and Europe?

As we said before, one of the big questions for 2024 is know what direction inflation will take. GDP and employment growth have been “surprisingly buoyant” among economies that experienced a “large and unwanted” spike in inflation between 2021 and 2022 and a clear moderation in 2023 as a consequence of the central banks’ tough monetary policy .

At its last meeting of the year, the Federal Reserve (Fed) was somewhat more optimistic than his community counterpart, the European Central Bank (ECB). The Frankfurt-based organization warned that inflation could experience a rebound at the beginning of the year and ruled out talk of rate cuts for the moment. On the contrary, the Fed adopted a more ‘dovish’ stance than expected by the market and announced that it could cut interest rates up to 3 times next year.


The Fed and the European Central Bank would cut rates in 2024

According to the expert of Goldman Sachssupply and demand for goods “have become more balanced” and the impact of this on commodity disinflation “is still developing and is forecast to continue through most of 2024.”

And what is more important, the balance between supply and demand in the labor market continues to improve. “Goldman Sachs Research’s employment-worker gap—measured as job openings minus unemployed workers—is trending downward everywhere. So far, the adjustment has occurred almost entirely benignly, as job openings have decreased without increasing unemployment,” the New York firm explains.

According to these economists, this year’s decline in inflation will continue in 2024 and they predict that sequential underlying inflation fall from the current 3% to an average range of 2%-2.5% across the G10, except Japan. “That would be broadly consistent with the inflation targets of most developed market central banks for the end of 2024. In any case, we believe that the risks to achieving inflation consistent with the targets are on the lower side. early,” adds Hatzius.

4. Rate cuts: When will they be?

However, it is “unlikely” that large cuts of the interest rates in developed markets before the second half of 2024… unless economic growth turns out to be “weaker than expected.” In part, this Goldman Sachs view is based on an expectation that inflation will remain “slightly” above the target, that unemployment rates will remain below their long-term levels and that GDP will grow “at approximately the same rate trend” in 2024. In emerging markets, however, the cuts are expected to be announced earlier.

However, Goldman Sachs believes that There will be two countries that could differentiate themselves from the rest: Japan and China. In the case of the first, it is distinguished because its rise in inflation was “largely desired.” After three decades of anemic price pressures or outright deflation, the 2023 wage increases indicated the Bank of Japan was moving closer to its goal of establishing a “virtuous circle” between wages and prices.

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