Politics and policies will shape the world economy in 2024. Geopolitical conditions remain challenging, with actual conflicts and serious risk scenarios creating uncertainty for businesses and entire economies. More narrowly, economic policies in general and central banks in particular will remain in the spotlight – and be decisive both for the economic outlook and for financial markets. 2024 will also see a record number of elections, with the US presidential election in November being the most important one. While the immediate macroeconomic impact of those elections is expected to be limited, their outcomes will influence the outlook for the coming years – potentially in a major way.

The world economy in 2024 will experience another year of relatively weak growth. Compared to a better-than-expected previous year, global growth may fall again to around 2.2% (2023: 2.7%). Emerging economies are likely to drive growth, particularly China and many other Asian countries, with growth rates of 4–5% – and even stronger growth in India. Nevertheless, growth in most of these economies is projected to be considerably weaker than in the decade before the pandemic.

Growth dynamics in advanced economies will likely be feeble, as high price levels and tight monetary policy dampen activity. In the USA, economic growth is likely to fall to around 1.4% following last year’s surprisingly positive data. In the eurozone, growth will remain very low in 2024 (around 0.5%), similar to the previous year.

Following record-high inflation and a massive tightening of monetary policies across economies, price pressures are expected to be further reduced. Nevertheless, annual inflation rates will likely stay above central bank targets in many advanced economies in 2024.

The key findings of the Economic Outlook 2024 produced by Munich Re Economic Research:

• Despite multiple headwinds, economic growth in 2023 turned out to be better than expected. In the advanced economies, robust labour markets and strong wage growth were at the centre of this surprise growth, most notably in the United States. In contrast, inflation came down largely as expected, though still remaining above normal levels.
• Leading indicators point to rather weak growth over the coming months. Across advanced economies, the effects of still-elevated inflation and high interest rates are dampening the economic activity of both households and firms. There is some potential for conditions to improve in the second half of 2024, offering a return to somewhat stronger growth.
• Although world economic growth will be mainly driven by emerging economies (as it was in 2023), growth in these economies, too, is projected to be considerably weaker than in the decade leading up to the pandemic. The recovery of global trade is projected to be feeble, hampered by weak investment spending, trade disputes and geoeconomic fragmentation.
• Risks to the growth outlook are tilted to the downside. Geopolitics will remain an important risk factor for the world economy. The terrorist attacks against Israel and the resulting Israel-Hamas war have put the risk of escalation in the Middle East in focus, and the attacks on shipping in the Red Sea highlight the risk of disruptions to global supply chains. The Russian war of aggression in Ukraine continues, and US-China tensions are still elevated.
• Further downside risks include a recession in advanced economies as a delayed consequence of past monetary tightening (i.e. a stronger-than-expected impact of past interest rate hikes on the economy), but also a deeper real estate crisis in China
• Inflation rates fell during 2023 due to lower energy prices and more moderate increases in the price of food, non-energy goods and services. However, inflation pressure is still elevated and broad-based, reflecting lags in the pass-through of higher input costs as well as continued strong wage increases. Thus, although inflation dynamics are expected to come down further over the coming months, annual inflation rates will likely stay above central bank targets in many economies in 2024.
• In an environment of rather weak growth and further falling inflation, major central banks are expected to start lowering their policy rates. However, current expectations on financial markets might prove to be overly optimistic.
• Inflation risks continue to be tilted to the upside, but have become more balanced in recent months. Tighter-than-expected labour markets and stronger consumer spending in advanced economies, higher energy prices or higher goods transport costs (due to global shipping lane disruptions) would result in higher-than-expected inflation. This might induce further interest rate hikes – with negative effects on economic growth. However, the potential for lower-than-expected inflation exists as well, especially in the event of a mild recession and thus weaker aggregate demand. In that case, central banks would be very likely to cut interest rates earlier than expected.
• 2024 will also see a record number of elections globally, with the US presidential election in November being the most important one. While the immediate macroeconomic impact of those elections is expected to be limited, their outcomes will influence the outlook for the coming years – potentially in a major way, e.g. with respect to trade and climate policies. This comes at a time in which there are already clear signs that the global political and economic order is about to change, with the geostrategic conflict between the US and China and geoeconomic fragmentation taking centre stage.