Why the global economy still looks set for growth
The recent World Economic Forum offered an encouraging start to 2024 – despite the hurdles ahead.
After the most aggressive bout of monetary policy tightening in many years, how will the global economy fare in 2024? Will we see a so-called ‘soft-landing’ for growth, now that inflation is under greater control, or will this sustained period of higher interest rates impair economic activity?
Our research supports the first of these two scenarios. We expect global GDP growth to slow only marginally, from 3.1% in 2023 to 2.9% in the year ahead. Beneath this reassuring overall figure, however, the picture is mixed. In developed markets, where the inflation spike hit hardest and the monetary response was more severe, average growth will lag behind at 1%.
Growth in Asia will slow slightly to 4.9%, but it will still be the fastest expanding region in 2024. Understandably, China is the focus of much concern after a tough post-COVID period. As China continues with its transition to an economy more heavily weighted to higher-growth technology, services and consumer spending, we expect it to remain at relatively subdued growth of around 5% this year.
The right path for growth
China’s transition from ‘traditional’ industries and sectors – heavy manufacturing, construction, real estate – to ‘new economy’ activity such as renewable energy infrastructure, battery production and EV manufacturing is monumental. Some amount of economic pain is inevitable in the process. For example, policymakers in Beijing are still dealing with the impact of considerable losses in real estate across the country. But, in the medium and long term this is the right path for growth in China.
Standard Chartered is very well positioned within these future-facing industries. In September last year I visited Guangdong province, where we have clients already producing millions of electric vehicles (EVs) per year, with plans to expand considerably. Our role is to continue connecting these businesses with global investment flows, and assisting clients of every size to find new markets and new opportunities. We’re already performing strongly here – two-thirds of our China income relates to cross-border activities.
Elsewhere, I’m very excited about our growth potential in India, where we’re investing heavily in our retail and commercial banking services, and in our Middle East franchise. Indonesia is also expected to perform strongly this year as our clients invest in key components of the technology value chain and as consumers surge into middle class spending, saving and borrowing patterns.
Optimism, not complacency
Despite our optimism, we are not complacent about the challenges to global growth. Inflation may be stickier than expected, delaying monetary easing in major economies and further hampering business activity. Confidence remains fragile, and there are few, if any, major drivers of global growth waiting in the wings.
With many economies operating on fine margins, even more emphasis must be placed on maintaining the smooth cross-border flow of goods and services. But that feels like an increasing challenge, as geopolitical tensions abound. Our increasingly fragmented world, and the impact this has on our clients, was a big topic of conversation for us at the World Economic Forum (WEF) in Davos in January.
As our recent report in partnership with Bloomberg makes clear, preserving the benefits of globalisation – higher growth, greater cultural exchange and more economic opportunities for ordinary people – means addressing its flaws. Too many communities feel left behind by growth, or buffeted by impersonal forces beyond their control. Our current economic model puts too many natural habitats at risk, and doesn’t do enough to secure sustainable prosperity.
Changing this is a big challenge, and one that will be even harder to do against a backdrop of discord and mistrust. But building a better model for globalisation is essential to addressing many of our common problems, like climate change and digital security. It’s clear from my time at WEF that there is significant support for this across the public and private sectors – despite the hurdles ahead, this was an encouraging start to 2024.