MacroEconomic Bulletin - The year ahead 2024

For 2024 we highlight three main themes: geopolitical risks, inflation and interest rates, and economic slowdown. Potential risks include misinformation due to improper use of AI and extreme weather events.

1. Geopolitical Risks:

• Electoral year: More than half of the world's population will engage in elections. Despite this, significant shifts in political leadership are not expected. However, political division and radical populist movements could impact the global economic landscape.
• Ukrainian War: Continuing into its second year, the war in Ukraine continues to impact energy prices, raw materials, and food. While Europe's decreasing dependence on Russian energy imports has softened the economic impact, the ongoing conflict poses latent risks.
• Conflict in the Middle East and Supply Chain Impact: The Israel-Hamas conflict has disrupted global maritime trade, affecting supply chains and potentially contributing to inflation. Attacks on ships in the Suez Canal and the Strait of Hormuz have caused changes in maritime routes and increased both transport and energy inflation.
• U.S., China, and Taiwan Tensions: Despite a show of cooperation at the recent Asia Pacific Economic Cooperation Forum, tensions have escalated. Taiwan's importance in the global technology sector and its push for independence add to the complexity of the situation.

2. Inflation and Interest rates:

• Inflation rate is expected to recover at a slower pace in 2024. In fact, we expect potential increases during the first half of the year due to base effects and removal of fiscal stimulus. For the year as a whole, we expect it to remain around 3% in the main eurozone economies.
• Interest rate cuts are expected in the second half of the year, although the exact timing and extent are uncertain due to geopolitical risks and second round effects.

3. Economic slowdown:

• The U.S. economy demonstrated strength in 2023, whereas the European Union experienced sluggish economic expansion.
• Growth in 2024 is expected to slow further. Downside risks include more restrictive fiscal policy, geopolitical events, and high inflation and interest rate data. This cooling growth is expected to impact the labor market and reduce household consumption.