Outlook 24: an issue of scale

It feels like we’ve been here before.

As businesses shift their focus to 2024, it’s easy to get a sense of déjà vu. Surely, after the most aggressive tightening cycle in decades, economic conditions in 2024 will be worse?

Many asked the same question, but for different reasons, in 2022. And in 2021. And in 2020.

Expecting a more challenging year in 2024 is not unreasonable. But in my view, the likelihood of a serious recession is low.

{video}

The key issue is the scale of the challenge.

Consumers and businesses are dealing with higher interest rates, which aren’t likely to start declining for some time yet. But for the global economy this has been the least credit-intensive upswing in many decades.

In many economies, household and corporate balance sheets are in very strong shape. It seems the beneficial effects of the tightening in financial sector regulation after the global financial crisis has been enormously under-estimated.

As such, the business opportunities remain substantial.

The government is also often a significant influence on that opportunity set. Consider extra spending on defence, infrastructure, housing, aging, and climate. The private sector will need credit and materials to contribute.

I’m not suggesting the environment is risk free. Geopolitics, and even domestic politics in many economies, remains a theme to watch. The social fabric is under stress. The Economist magazine suggests 2024 will be the biggest election year in history.

China’s economy is also growing much more slowly than we are used to historically and China has complicated policy trade-offs to manage.

Lower appetite for China exposure, however, means other markets like India and even the US are receiving more global capital.

Interest rates are likely to be higher for longer and activity softer, but the risk of a nasty recession is very low.

Richard Yetsenga is Chief Economist at ANZ