Even though the cryptocurrency space often seems like it takes on a life of its own, history has shown that the crypto markets do still correlate somewhat with traditional financial markets. Therefore, it’s important for traders to understand the current conditions facing the global economy as well as future outlook. Certain economic indicators such as inflation are seen as having significant impact on cryptocurrencies, which are sometimes seen as an inflation hedge (especially Bitcoin, dubbed “digital gold”).
In 2024, uncertainty remains a dominant factor shaping the global economy, as indicated by the World Economic Forum. While some economists anticipate further weakening of the global economy, others foresee a stabilizing or improving economic landscape. These uncertainties have persisted over the past year, with sluggish global economic activity, tight financial conditions, and escalating geopolitical tensions contributing to ongoing volatility.
Geopolitical tensions are a key concern among economists, with nearly seven in ten experts predicting an acceleration in geoeconomic fragmentation throughout 2024. This trend is expected to fuel volatility in both the global economy and stock markets over the next few years. Additionally, economists anticipate an uptick in localization efforts despite a widening economic gap between the global north and south. The IMF also warns of the potential economic repercussions of heightened trade restrictions, estimating a potential loss in global economic output of up to 7%. The following sections dive deep into the economic trends that major countries are currently experiencing and how they may impact 2024 growth.
U.S. Economy Stabilizes but Headwinds Remain
Federal Reserve Flip Flops on Recession
Despite bearish forecasts from the Federal Reserve in early 2023 of an impending recession, now the outlook is no longer so bleak. The Federal Reserve and analysts alike are optimistic about the economic outlook, with no signs of a recession anticipated in the near future. The Federal Reserve's recent economic projections indicate expectations for robust economic growth in 2024, 2025, and 2026, surpassing previous estimates.
Federal Reserve Chair Jerome Powell emphasized the strength of the economy, citing a robust labor market, declining inflation, and strong corporate earnings. Despite interest rates reaching their highest levels in two decades, the economy remains resilient, buoyed by factors such as record-breaking stock market performance and a potential productivity surge.
Recent economic indicators, such as a solid 3.2% annualized GDP growth rate in the fourth quarter of the previous year, followed by a robust 4.9% rate in the preceding three-month period, further support the outlook of continued economic strength. The Atlanta Fed's projection suggests a 2.1% expansion in GDP for the first quarter of 2024.
5 Predictions for the U.S. Economy in 2024
According to analysts at major investment banks, the following ten economic trends may manifest this year.
- Growth decelerates - Real GDP growth will hover near the threshold between slight expansion and contraction for much of 2024, a phenomenon commonly referred to as a soft landing. Despite exceeding expectations with a 2.8% real GDP growth in 2023, forecasts suggest a subdued pace of expansion at 0.7% in 2024, which falls below the trend. Within the major components of GDP, consumer spending is expected to increase at a slower rate next year and fiscal spending may become a drag.
- Inflation trends down - After hitting a four-decade peak in 2022, inflation, both in terms of headline and core measurements, has notably eased in 2023. However, the degree of improvement varies across different categories. Despite peaking at 7.3% in February 2023, core services inflation remained elevated at 5.5% by October 2023. During 2024, inflation may taper off a bit as the lag in market rents pricing is expected to align with inflation readings. Forecasts predict that core PCE prices, the inflation metric favored by the Fed, will increase by 2.4% in 2024, a decrease from the 3.4% observed in 2023.
- Unemployment stabilizes - Momentum in the job market is showing signs of slowing down, characterized by a decrease in payroll growth and a slight uptick in unemployment rates. Additionally, quit rates and temporary help are on the decline. Despite increased labor force participation and heightened immigration levels over the past year contributing to an expansion of the labor supply, indicators such as a shortened work week suggest a moderation in demand for labor. Reduced hiring activity could still lead to a slight increase in the unemployment rate, potentially reaching the mid-4% range by the end of 2024 due to worker turnover.
- Consumer spending declines - Several factors indicate a potential slowdown in consumer spending for 2024, including reduced levels of excess savings, stabilization in wage increases, low savings rates, and a decrease in pent-up demand. Additionally, the resumption of student loan repayments and a rise in subprime auto and millennial credit card delinquencies suggest emerging financial strain among certain consumers. Consumer spending growth likely remains positive this year but should be lower that the pace seen in 2023.
- No more rate hikes - If inflation continues to decrease in the coming quarters, the Federal Open Market Committee (FOMC) will likely begin gradually normalizing policy rates around the middle of 2024. Fed Funds target range may reach 4.00% - 4.25% by the end of 2024. Quantitative tightening is expected to proceed at the same pace throughout 2024, set at $95 billion per month, and is projected to withdraw approximately $1 trillion from the economy next year.
Japan Economy - Outlook and Changing Monetary Policy
This March, the Bank of Japan announced its decision to raise interest rates for the first time since 2007, marking the end of the world's sole negative rates regime and other unconventional policy easing measures that had been implemented over the past few decades to address deflation.
This move represents a significant historical shift and signals a notable reversal in one of the most aggressive monetary easing efforts globally. "We reverted to a normal monetary policy targeting short-term interest rates, as with other central banks," BoJ Governor Kazuo Ueda said at a press conference after the decision. "If trend inflation heightens a bit more, that may lead to an increase in short-term rates." Additionally, the Bank of Japan (BOJ) has ended its radical yield curve control policy for Japanese sovereign bonds. This policy involved the central bank targeting longer-term interest rates by buying and selling bonds as needed. It’s a sign of increasing austerity for the Asian nation.
Earlier in the year, Japan was overtaken by Germany to become the world’s fourth-largest economy. This is due to a decrease in GDP during the final quarter of 2023. According to data from the Cabinet Office, Japan’s economy experienced a contraction at an annual rate of 0.4% in the October to December period, which follows a 2.9% decline in the July-September quarter. Since Japan experienced two consecutive quarters of contraction in late 2023, it technically fell into recession.
Japan holds one of the highest levels of indebtedness globally, with a debt to GDP ratio exceeding 200%. Negative interest rates facilitated the accumulation of such substantial debt. However, if the government's interest payments begin to significantly increase, it could raise doubts about the sustainability of this debt burden. Consequently, the government may face difficult decisions regarding future budgets, potentially necessitating tax hikes, spending reductions, or a combination of both. Moreover, imbalances within Japan's economy are anticipated to impede growth in the foreseeable future. The primary challenge to achieving recovery lies in the disparity between high inflation and relatively subdued wage growth.
European Economy - Outlook and Changing Monetary Policy
The European Commission announced in February 2024 that the euro zone economy is projected to experience slower growth than previously anticipated this year. This deceleration is attributed to decreased purchasing power resulting from inflation and the impact of elevated interest rates set by the European Central Bank (ECB), which have restricted credit availability. However, it is also noted that inflation in 2024 is expected to be slower than initially predicted.
According to the forecast provided by the EU executive, the gross domestic product (GDP) of the 20 countries within the euro currency area is expected to increase by only 0.8% in 2024, a downward revision from the 1.2% growth forecasted last November. Nonetheless, this projection still represents an improvement compared to the 0.5% growth recorded in 2023.
Looking ahead to 2025, the Commission anticipates a rebound in economic growth, with GDP expected to accelerate to 1.5%. However, this forecast is slightly lower than the earlier prediction of 1.6%.
Germany, the largest economy in the European Union (EU), is expected to significantly weigh down EU growth in 2024. The European Commission has revised its growth forecast for Germany downwards, with an anticipated growth rate of only 0.3% in 2024, compared to the previous projection of 0.8% made in November. France, the second-largest economy in the EU, is also expected to experience slower growth in 2024, with a revised forecast of 0.9% growth compared to the previous estimate of 1.2%. Italy, the third-largest economy, is anticipated to expand by only 0.6% in 2024, down from the previous forecast of 0.9% made three months ago.
Overall, the global economy is facing significant headwinds in 2024 due to lagging growth as well as geopolitical risk factors. War currently rages between both Russia and Ukraine as well as Israel and Palestine. Geopolitical tensions increase uncertainty, which hurts investment and international trade. Financial stress can be felt amongst the population in the Americas, Asia, and Europe, but there are some bright spots with the USA no longer anticipating recession this year.
Register to get $180 Welcome Bonus!
