PIIE projects continued global growth in 2024

The Peterson Institute for International Economics (PIIE) today announced its Spring 2024 Global Economic Prospects, projecting continued global growth in 2024 and 2025. Real global GDP is projected to increase 3.1 percent in 2024, matching its 2023 pace, and post a gain of 3.2 percent in 2025.

US Economic Performance

One striking development of the past year is the degree to which real US GDP growth has surprised to the upside. On a year-over-year basis, PIIE now projects that US GDP will rise at a robust 2.8 percent pace in 2024—a much higher figure than forecasters were projecting six months ago.

The underlying drivers of household demand in the United States have remained strong. Real income growth has been buoyed by a healthy labor market, and the available data suggest that many households—across the income distribution—have higher net worth than they did before the pandemic. Moreover, housing and business investment have held up despite high interest rates.

Even with these favorable supply-side developments, recent data suggest a stalling of progress in bringing US inflation back to its target levels. As a result, the Federal Reserve is likely to cut rates only very slowly. Given this policy, Karen Dynan, PIIE nonresident senior fellow, projects US growth will slip from 2.8 percent in 2024 to 1.9 percent in 2025 and that the US unemployment rate will rise by about 0.25 percentage point to 4.1 percent this year and stay at this level in 2025. This moderation of demand is projected to lead core personal consumption expenditure (PCE) inflation to sink to 2.5 percent in 2024 and 2.3 percent in 2025.

Outlook for Large Economies

The steadiness of global GDP growth masks substantial differences across countries. Most G7 economies have experienced soft landings but to different degrees. The United States leads because of favorable demand and supply drivers. The euro area, on the whole, has seen less economic momentum than the United States, but growth should pick up once monetary policy begins to ease. A surge in tourism bolstered Japanese growth last year, but rising interest rates and an external drag from a weaker Chinese economy will temper economic performance going forward. Meanwhile, UK GDP is likely to continue to move sideways this year, with growth dampened by fiscal limits, real income declines, and a lingering Brexit drag.

The outlooks for the major emerging economies are shaped by a set of very divergent drivers. Notwithstanding its real estate crisis, China experienced a relative brisk rebound in overall economic activity last year due to the resilience of consumer and private investment (excluding real estate). But the strength of Chinese consumption is likely to fade this year, producing a drag only partly offset by state-led investment. In contrast, India is likely to continue to grow robustly, boosted by domestic reform and a pickup in foreign investment due to "friendshoring." Pre-war surpluses and demand for Russian energy exports have put a floor under Moscow's growth. Finally, although Brazil's monetary policy response to inflation is viewed as a success, structural challenges are likely to keep the country's growth below the pace it experienced in the early 2000s.


Tianlei Huang, PIIE research fellow and China program coordinator, discussed China's 2024 outlook and its fiscal policy amid the property crisis. 

Huang says China's growth target of 5 percent for 2024 will be challenging to achieve without additional policy support, as the one-off boost from its zero-COVID reopening is gone and the housing downturn continues. Household consumption was the main growth driver last year largely due to recovery, and its strong growth is unlikely to be sustained. Low consumer confidence may play a more visible role in affecting consumer spending. Net exports, which dragged down GDP growth by 0.6 percentage point last year, will likely make a positive contribution to growth this year, as external demand for Chinese goods is expected to see a modest recovery. However, China's exports of certain clean-energy goods will face protective responses from trading partners.

Huang argues that state-led investment will likely play a more prominent role than last year in driving economic growth, and private investment will remain weak because of the housing downturn. The importance of state-led investment in driving growth is reflected in China's government budget this year. With overall budget spending growing at 7.8 percent, higher than the expected nominal GDP growth, China's 2024 budget is slightly more expansionary than last year's actual expenditures. However, its intended fiscal boost can fall short, if local governments underutilize their special bonds or land revenue falls below projection, as happened in previous years. Moreover, if Beijing's crackdown on local government debt intensifies, it could lead to a retrenchment in local off-budget spending, undermining the effect of the on-budget fiscal expansion.

Floating Exchange Rates

Maurice Obstfeld, PIIE's C. Fred Bergsten Senior Fellow, reviewed recent trade and geopolitical tensions that pose challenges to the economic progress made since the collapse of the Bretton Woods system of fixed exchange rates in the early 1970s. Though many considered that era as the end of international monetary cooperation under the leadership of the United States, a robust "non-system" based on floating exchange rates emerged and grew over the next 50 years, achieving macroeconomic stability throughout the world, international trade growth, and higher living standards among poor countries.

Obstfeld's presentation discussed challenges to the continuing dominance of the US dollar in international trade and finance, suggesting that for now, neither the euro nor renminbi will be able to fulfill the dollar's role as an international currency. He also addressed continuing difficulties posed by large trade deficits, speculative capital flows, exchange rate volatility, inflation, and the need for capital in developing countries. His presentation was derived in part from a newly published PIIE book, Floating Exchange Rates at Fifty, edited by Obstfeld and Douglas Irwin.

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