The global economy is projected to expand 3.0 percent in 2023 and 2.8 percent in 2024, a slower pace than the 3.4 percent rate in 2022. Inflation is receding in most countries but remains above central bank targets.
The Peterson Institute for International Economics’ Fall 2023 Global Economic Prospects forecasts a likely soft landing in the United States after solid growth thus far in 2023. Labor demand has moved more in line with labor supply, and wage and price inflation have moderated. With inflation still above the Federal Reserve’s target, monetary policy will need to remain restrictive, keeping US real GDP below its potential level throughout next year. On a year-over-year basis, US growth is projected to moderate from 2.2 percent in 2023 to 1.6 percent in 2024.
Other large economies will experience different degrees of growth in 2024. Like the United States, the United Kingdom and European Union face restrictive financial conditions that will hold back economic activity. Chinese economic growth continues to wobble as modest stimulus measures are more than offset by the lingering effects of the property crisis, weak consumer demand, and unsustainable local government debt. Japan’s growth has been unexpectedly strong in 2023, reflecting a boost from a pick-up in tourism after a delayed reopening from COVID-19.
The soft landing projected for the United States and many other countries is likely but not assured. If underlying strength in demand persists more than expected, the Federal Reserve and other central banks may need to tighten more than planned, increasing the odds of a downturn. A yet more challenging scenario would be delivered by inflationary supply shocks and further monetary policy tightening in response to higher inflation.
This PIIE Chart is adapted from Karen Dynan’s blog post, PIIE projects global economy poised for soft landing, and her presentation at the Global Economic Prospects: Fall 2023 event.