Global economic outlook: finding balance in 2024

The 2024 global economic outlook includes a search for equilibrium amid lingering turbulence and volatility as policymakers try to maintain a soft landing.

In brief

• After proving more resilient than expected in 2023, the global economy will be searching for equilibrium in 2024.
• The EY global economic outlook calls for sub-trend growth, but no recession, with modest growth in advanced economies and moderate momentum in emerging markets.
• Potential challenges may still be seen in inflation and labor markets. Fiscal and monetary policy, technology and financial markets may still appear on edge.

The global economy proved to be more resilient than anticipated in 2023. At 3%, global GDP growth surpassed consensus expectations by 1 percentage point. This outperformance was even more remarkable in that it occurred despite the fastest monetary policy tightening cycle in four decades, severe banking sector stress, wars in Ukraine and Israel, and a brief but severe tightening of financial conditions in the fall.

Global economic outlook: top five themes in 2024

The global economic outlook for 2024 looks to be one steeped in transition. The key theme will be the search for equilibrium, marked by a collective effort to find a new normal. Economic turbulence and volatility are unlikely to fade, but business leaders, investors, consumers and policymakers are likely to find better balance in a world where inflation, labor markets, fiscal and monetary policy, technology and financial markets still appear on edge.

While the challenge for economies worldwide in 2023 was to ensure a soft landing, the question policymakers, businesses, and individuals must ask in 2024 is whether the runway is long enough to sustain that soft landing. 

The 2024 EY global economic outlook calls for cautious optimism. The year may well be a turning point, a period of transition to a new state of balance. Here are our top five themes for the year.

1. Sub-trend global growth but no recession

In 2024, we anticipate moderate global GDP growth around 2.8% – in line with its 2019 performance but below the expected 3.0% advance in 2023. We expect the composition of this growth to be mixed, with modest growth of around 1.3% in advanced economies, and moderate momentum of about 3.8% across emerging markets. 

We foresee the US economy advancing a moderate 1.8% in 2024 with a deceleration in the first half of the year and a reacceleration in the second half. We anticipate growth around 0.8% in Europe with Eastern European economies still benefiting from a catch-up effect while Western and Southern euro area economies grow at an unspectacular but positive pace. 

Most emerging economies are expected to grow below trend with China likely to fall short of the ambitious 5% GDP growth target despite supportive policy stimulus. 

2. Agility amid dueling headwinds and tailwinds

The notable growth headwinds in 2024 will come from weaker employment growth, persistently elevated prices and wages, high interest rates, tighter credit conditions and fiscal consolidation across most major economies with the notable exception of China. 

Still, there is room for optimism in that labor markets could once again prove more resilient than anticipated, supporting stronger income growth and consumer spending. And, while price levels will remain elevated, inflation will be easing and central banks will be cutting rates, providing a tailwind for households, corporations and investors.

With the value and cost of labor having increased significantly post-pandemic and the cost of capital likely to remain elevated, we foresee an increased strategic emphasis by business executives in driving stronger productivity growth. The urge to improve efficiency and invest in cutting-edge technologies such as generative AI (GenAI) could provide the global economy with both a cyclical and structural tailwind. Explore the economic opportunities, risks, and key considerations for business leaders presented by GenAI in our series on the economic impact of AI.

3. Ongoing disinflation

The combination of easing supply constraints, moderating final demand, rebalancing labor markets and cooling rents should lead to further global disinflation in 2024. Advanced economies should see inflation approach central bank targets by mid- to late-year while inflation in large emerging markets in Latin America and Asia has largely converged back to pre-pandemic levels.

4. Central banks pivoting cautiously

Easing inflation and slowing economic momentum will push central banks to pivot away from their tightening stance. Still, given lingering fears of inflation resurgence, we believe developed markets’ central banks are likely to wait until there is undeniable evidence of inflation sustainably moving toward their targets before cutting policy rates. This means rate cuts are unlikely until the spring or early summer. Importantly, once the policy recalibration cycle is complete toward the end of 2025, we foresee rates being higher than in the pre-pandemic decade.

The Bank of Japan (BoJ) is likely to move in the other direction by exiting its yield curve control policy. Meanwhile, across emerging markets we see most central banks in Latin America easing monetary policy ahead of the Federal Reserve and European Central Bank while central banks in Asia largely follow in the Fed’s footsteps. In China, monetary policy is likely to remain accommodative to support growth.

5. Fiscal consolidation and geopolitically restrained trade

Fiscal sustainability is likely to feature prominently on policymakers’ agendas in 2024. We anticipate fiscal consolidation in most advanced economies resulting from a renewed focus on budget deficits in a high interest rate environment and the expiry of energy crisis support measures in Europe. Fiscal tightening is also anticipated in most emerging markets, although the adjustments may be less pronounced than in advanced economies.  

Global trade flows are likely to remain constrained in this subdued economic growth environment with services likely outpacing merchandise trade. Rising geopolitical fragmentation represents a notable cyclical and structural risk to the outlook, especially in a year where voters in markets accounting for about 54% of the global population and nearly 60% of global GDP will go to the polls.

Four strategies for business leaders to thrive in 2024

These four strategies suggest a holistic approach, considering both the internal adjustments within the company and the external economic and geopolitical landscape. Business leaders are encouraged to continuously assess and adapt their strategies to position their firms for growth despite the uncertainties.

• Enterprise Reimagined: To adapt to the global economic outlook, there is a need for a comprehensive transformation of the enterprise. This includes learning from past crises, conducting strategic refreshes, reviewing portfolios, and transforming labor, supply chain, and technology practices to be more resilient and adaptable.
  
  
• Accelerating investment in innovation: A super-cycle of technology-enabled innovation, particularly that driven by generative AI, calls for significant investment. Leaders need to secure capital that is focused on building the enterprise of the future, keeping up with advancements and integrating them into their business models.
  
  
• Embracing agility: Business leaders should focus on flexible planning that incorporates various economic scenarios and dynamic price modeling. This means staying nimble and being able to pivot strategies quickly in response to changing market conditions.
  
  
• Enhancing profitability: To fund future transformations, businesses will need to rationalize internally, take initiatives to reduce costs, and possibly undertake divestitures. This will create opportunities to improve financial operations, and strategic and transactional decision-making, all aimed at enhancing profitability.