WIf you want to pinpoint the global economic prospects for this year on people, they would be the economist Milton Friedman and the politician Donald Trump. In the 1960s, Friedman, who later won the Nobel Prize in Economics, spread the knowledge that changes in monetary policy only have long and variable delays in affecting the economy. This is the most important reason why the American and European economies in particular are not out of the woods after the rapid interest rate increases, even if there is already speculation about interest rate cuts.
Trump, in turn, if he were to win the presidential election in November, would subject free world trade to a strain that would likely increase the damage caused by his first term in office many times over. Even in anticipation of Trump's success, the associated uncertainty weakened international investment and trade relations.
That would be undesirable because the global economy is more likely to sluggish in 2024 than to make a substantial recovery. The International Monetary Fund, for example, expects economic growth to remain unchanged at 2.9 percent. On a global scale, this does not mean recession, but only slow growth. The global economy remains extremely vulnerable to risks.
Uncertain interest rate cuts
One of the dangers is inflation. It has fallen surprisingly sharply recently, but is still too high. The expected fall to the target values of 2 percent has yet to be confirmed in a time of strong wage increases and high debt-financed government spending. Therefore, it is not certain when the central banks will start cutting interest rates.
The United States surprised forecasters last year because the recession expected from monetary policy tightening failed to materialize and the economy grew strongly, supported by the government's debt-financed cornucopia. But postponed is not canceled. A recession as a result of tighter monetary restraints still cannot be ruled out. A soft landing, which is increasingly being speculated about, requires great luck.
The inflation shock continues to have an impact
Unlike America, the euro area surprised more negatively and will end 2023 with meager growth. Maybe things will get a little better from summer onwards, supported by rising real incomes and more consumption. To do this, however, consumers would have to absorb the inflation shock.
The euro economy has been languishing in stagnation for more than a year. The economic situation has not yet fully absorbed the necessary interest rate increases by the European Central Bank. It is a burden that Germany is simultaneously unsettling investors and consumers with its economic and financial policy capers. Impetus can hardly be expected from the third heavyweight of the global economy, China. There is too much uncertainty about the clean-up work on the real estate market and the direction of economic policy.
Wide scenario for accidents
The dull triad of economic blocs is preparing the ground for a global economy that offers a lot of scope for economic accidents this year: high energy prices, sharply rising interest burdens in public budgets, geopolitical risks surrounding Russia, China and the Persian Gulf or the burden of the strong dollar for many emerging and developing countries.
The greatest risk for the global economy lies in the possible election of Trump as American president. In his first term in office from 2017 to 2021, Trump was the main pioneer of the protectionist attempt to gain and consolidate dominance through tariffs and trade barriers. Geopolitically, this was aimed against China, but Trump also took action against allies such as Europe and Japan. He let the World Trade Organization come to nothing.
Don't fool yourself: when Trump's successor Joe Biden or Chancellor Olaf Scholz talk about “de-risking”, when America wants to establish exclusive trade relations with the West against China and other regimes for some goods, when America, Europe or Japan invest many billions Building up domestic industries for semiconductors, for example, is also part of the intellectual legacy of Trump's first administration.
In a second term he would force the institutional disintegration of the global economy and initiate countermeasures. Such a trade war poses the greatest threat to the global economy and the well-being of people in industrialized and developing countries in 2024.
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